100% financing in mortgage credit: Is it possible?
Is it possible to buy a house with 100% financing from the bank? Currently, there are limits on the amount banks can lend. But there is an exception. We explain it in this article.
What is the maximum ceiling that banks finance?
Since 2018, banks have changed the maximum financing thresholds for properties purchased through mortgage credit. While before that date banks could lend 100% of the value of homes, it is no longer possible.
The Bank of Portugal has imposed new limits on the loan-to-value (LTV), limiting the percentage of value that banks can lend. Therefore, for own and permanent housing, banks can lend up to 90% of the property value, and for secondary housing, up to 80% of the value. In other words, if the property you want to purchase costs 200 thousand euros, if it is intended for the first housing, you must give at least 10% of the value (20 thousand euros), and if the purpose is second housing, 20% of the value (40 thousand euros).
Note, however, that the LTV is applied to the lower value of the property, between the acquisition and the appraisal. That is, if the property has an acquisition value of 200 thousand euros, but is appraised at 180 thousand euros, for example, in the case of the first home you have to give 10% of that value (18 thousand euros).
And note that the 10% is the minimum ceiling that banks can charge, and they can ask for more than that. It will depend on your financial profile as a customer. They may offer better conditions, the less risk of default there is.
Is there a way to get 100% financing?
Currently, there is an exception provided by law that allows obtaining financing or LTV of 100%. If a property is in the possession of a financial institution, such as the bank, having been seized, it is possible to buy the house through fully financed credit. In order to do so, it is necessary to contract a housing loan with the entity that owns the property.
This happens because, as a rule, the bank aims to dispose of the properties it holds, as they have been seized from other clients. These debtors have defaulted, so the bank initiates an executive action in order to sell the property and liquidate the debt.
Can I hire a personal loan for the down payment?
No, by law it is not possible to contract a personal loan for the initial payment of a housing loan.
Once the law imposed limits on LTV, aiming to protect banks from the default risk of clients, when carrying out two credits, the risk persists.
In other words, having two contracted credits increases a client's effort rate and the risk that banks are exposed to is the same as if they were financing the property 100%.
Therefore, granting a personal credit as a complement to the housing credit is currently illegal and contrary to what is intended by the law.
How to get the bank's maximum financing?
To obtain the maximum financing from the bank, you need to meet certain requirements so that the institution considers your loan low-risk.
The higher the level of risk and non-compliance, the less financing the bank provides. Therefore, if you have a solid financial profile, you may be able to obtain the maximum LTV limit that the bank can achieve depending on the property's purpose.
In other words, it is advisable that your effort rate (weight of credit commitments in net monthly income) is within the ideal percentage. The maximum limit that banks allow for the effort rate, according to the indications of the Bank of Portugal, is 35%.
In addition, it is also required that the applicant have a permanent professional contract, as it indicates greater stability and predictability of income to be received.
After, the more holders the credit has, the better conditions it is possible to achieve. This is because more than one person indicates more income, which reduces the risk level of default on monthly installments. The same happens if there are guarantors, providing an additional guarantee.
It is important to be informed about the entire mortgage credit process beforehand, before moving forward with the hiring, in order to make the best decision for you. The more you know, the better you decide and the more you can save. For this, you can opt for the help of a credit intermediary, like those from Poupança no Minuto, who deal with all the bureaucracy with banks and clarify all your doubts, through a free and personalized service.