SERVICESMortgage for Foreigners
Mortgage guidelines for foreigners?
The mortgage loan for foreigners who want to buy a property in Italy is a medium- to long-term loan, which usually lasts from 5 to 25 years. The customer usually receives the entire sum in one lump sum and repays it over time in instalments of constant or variable amounts. It is used to buy, build or renovate a property, particularly a house. It is called ‘mortgage‘ because the payment of instalments is secured by a mortgage on a property.
It can be granted by banks and other financial operators, all of which we call ‘intermediaries’. Some banks offer tailor-made mortgages for foreigners living and working in Italy. The amount of the loan varies depending on the applicant’s economic needs and repayment possibilities.
MORTGAGES FOR FOREIGNERS CAN ONLY BE REQUESTED IF THE PROPERTY IS LOCATED ON ITALIAN TERRITORY.
We can work together to obtain the best solutions for you and optimise your chances of obtaining a mortgage in Italy, buying or renovating a property.
How do I choose a mortgage?
Yes, foreigners can obtain a mortgage in Italy. However, it is important to note that the process and conditions may vary depending on factors such as place of residence and specific bank policies. When it comes to obtaining a mortgage as a foreigner in Italy, there are criteria set by banks that must be met and that can vary by bank, so it is advisable to seek assistance from a financial advisor who can help you untangle the specific requirements and procedures.
The two main types of mortgages available in Italy are:
- Fixed-rate mortgages: The interest rate of a fixed-rate mortgage remains the same throughout the term of the loan. This means that the monthly payment will be the same each month, regardless of any change in the market interest rate. Fixed-rate mortgages are generally more expensive than adjustable-rate mortgages at first, but they can offer peace of mind and predictability to borrowers.
- Adjustable-rate mortgages: The interest rate on an adjustable-rate mortgage can fluctuate over time, in line with changes in the market interest rate. This means that monthly payments may increase or decrease depending on the interest rate. Adjustable-rate mortgages are generally cheaper than fixed-rate mortgages at first, but they can be riskier for borrowers because monthly payments may increase if interest rates rise. In addition to these two main types of mortgages, other mortgage products are also available in Italy. It is a good idea to ask your financial advisor for more information.
To obtain a mortgage in Italy, you must meet the following requirements:
- Being of legal age. Most Italian banks require borrowers to be at least 18 years old.
- Have a regular income. You must be employed on a permanent contract or have a steady income from another source, such as self-employment or investment.
- Have a good credit score. Italian banks will check your credit score to assess your creditworthiness.
- Have a down payment. The amount of down payment required varies depending on the bank and the property to be purchased. However, most banks require foreigners to have a down payment of at least 50 percent of the purchase price.
- Have a guarantor. If you are a foreigner or have a limited credit history, you may need to find a guarantor willing to co-sign your mortgage.
In addition to these general requirements, you will need to provide the bank with a number of documents, including:
- Personal identification documents. These are your passport, driver’s license, and social security number.
- Proof of income. This may be your employment contract, tax return or bank statements.
- Proof of assets. For example, savings accounts, investment portfolios or ownership documents.
- An appraisal of the property you are purchasing. The appraisal must be done by a qualified appraiser.
The bank will review your application and make a decision. If the application is approved, you will be able to sign the mortgage contract and receive the funds. It is advisable to contact a financial advisor such as FMoretto Consulting for personalized advice on how to obtain a mortgage in Italy.
Yes, it is possible to buy a house in Italy without residency. There are no restrictions on foreigners buying property in Italy. A nonresident has the possibility to buy real estate in Italy by taking advantage of the prima casa relief, verifying specific requirements.
Yes, it is possible to obtain a mortgage in Italy with a foreign income. However, Italian banks apply stricter evaluation criteria for applicants with foreign income than for applicants with Italian income. Italian banks evaluate foreign income differently depending on the currency in which it is denominated. For euro income, banks apply the same rules as for Italian income.
Financial advisors like FMoretto Consulting can provide you with all kinds of vital help in buying property in Italy. Moving from abroad and buying property in Italy can be a daunting experience, especially if you do not speak the language or have the right advice or guidance.
Currently, Italian banks offer foreigners mortgages with a loan-to-value (LTV) of between 50-60% with a minimum loan of about 100,000 euros. Italian lenders usually require a 40-50% deposit for nonresidents.
Both fixed-rate and adjustable-rate mortgages are available in Italy. Evaluate both based on what is best for you, both now and in the long term: remember that an Italian mortgage can last up to 30 years.
In general, the age limit for mortgages in Italy is 75. This means that the borrower must be less than 75 years old at the end of the mortgage term. However, some lenders may have stricter age limits, or they may be willing to make exceptions for borrowers with a solid credit history and good income. For example, some lenders may allow borrowers to have a maximum age of 80 at the mortgage maturity, especially if they have a younger co-signer. Other lenders may be willing to grant a mortgage to a borrower over age 75, but may require a larger down payment or a shorter mortgage term.
Here are some tips for getting a mortgage in Italy if you are older than 75:
- Obtain a co-signer. A co-signer is a person willing to guarantee your mortgage. If you are unable to repay the loan, the co-signer will be responsible for doing so. The presence of a co-signer can make it easier to obtain a mortgage and may also allow you to get a lower interest rate.
- Making a larger down payment. A down payment is the amount of money you pay up front to purchase a property. A larger down payment will reduce the amount of money you have to borrow and make the mortgage more affordable.
- Getting a shorter mortgage term. A shorter mortgage term means that the loan will be repaid sooner. This will reduce the amount of interest to be paid over the life of the mortgage.
Be prepared to provide additional documentation. Lenders may require borrowers over age 75 to provide additional documentation, such as proof of income, assets, and health. If you are considering getting a mortgage in Italy, it is important to talk to a financial advisor such as FMoretto Consulting. These can help you understand the different options available and find the best mortgage for your needs.
In Italy, real estate is subject to a number of taxes, both property and income taxes.
Patrimonial taxes
Patrimonial taxes are those that affect the ownership of a property, regardless of its use or profitability. The main property taxes on real estate in Italy are:
- IMU (Imposta Municipale Propria, or Municipal Property Tax): this is a tax payable on all real estate owned as property or other right in rem, excluding the principal dwelling and its appurtenances. The IMU rate is set by municipalities and can vary from a minimum of 0.46 percent to a maximum of 1.06 percent.
- TARI (Garbage Tax): is a tax due for the municipal waste collection and disposal service. The TARI rate is set by municipalities and can vary from a minimum of 25 percent to a maximum of 50 percent of the waste rate.
Income taxes
Income taxes are those that affect the income produced by a property. The main income taxes on property in Italy are:
- IRPEF (Personal Income Tax): this is the personal tax that applies to a taxpayer’s total income, including income from the rental of real estate. The IRPEF rate for rental income is 23 percent.
- IRES (Corporate Income Tax): is the tax that applies to the income of companies, including companies whose main object is the rental of real estate. The IRES rate for rental income is 28%.
Taxes on the purchase of real estate
When purchasing real estate, the seller is required to pay a number of taxes to the tax authorities, which vary depending on the nature of the property and its intended use. The main taxes on the purchase of real estate in Italy are:
- VAT (Value Added Tax): is a tax payable on all goods and services, including real estate. The VAT rate for real estate is 4 percent for the purchase of a first home and 10 percent for the purchase of a second home. VAT on real estate is paid only if the purchase is from a construction company, if you buy from a private individual there is no VAT
- Registration tax is a tax payable on all transfers of real estate. The registration tax rate is 2 percent for the purchase of a first home and 9 percent for the purchase of a second home.
- Mortgage tax and cadastral tax are two taxes due on all transfers of real estate. The mortgage tax is 50 euros and the cadastral tax is 50 euros.
Property taxation in Italy is complex and multifaceted. Choosing a property to buy must also take into account tax aspects in order to avoid running into unpleasant surprises.
No, it is not possible to buy Italian citizenship or obtain it through direct investment. Buying a property in Italy does not entitle foreign nationals to obtain a residence permit in the country.If you buy a house in Italy, you can transfer your residence to the municipality where the property is located within 18 months of your purchase. To do this, you must submit a declaration of residence to the municipality of your interest.
Italian banks favor granting mortgages to foreigners, whether or not they are residents of Italy. The procedure, however, is lengthy: The time can vary from 40 to 60 days, sometimes longer.
Yes, you can own a vacation home in Italy. Once you have purchased the house, you can also rent it out to tourists to generate income. However, it is important to make sure you are in compliance with Italian laws regarding the rental of tourist properties.
Yes, it is possible to retire in Italy. Italy is a popular destination for retirees from around the world because of its beautiful landscapes, rich culture and affordable cost of living. To retire in Italy, you must apply for an elective residence visa, also known as a retirement visa. This visa is available to non-EU citizens who have sufficient income to support themselves without working. You can apply for an elective residence visa at the Italian embassy or consulate in your country. Once you have the visa, you will have 90 days to enter Italy and apply for a residence permit. Once you have the residence permit, you will be able to live in Italy permanently. You will also be able to travel freely throughout the European Union.
Types of mortgage in Italy
FIXED-RATE MORTGAGE
The interest rate remains the one fixed by the contract for the entire duration of the mortgage.
The disadvantage is not being able to take advantage of any reductions in market rates that may occur over time.
The fixed rate is recommended for those who fear that market rates may rise and from the moment the contract is signed want to be certain of the amounts of the individual instalments and the total amount of the debt to be repaid.
In return for this advantage, the intermediary often applies more onerous conditions than for a variable rate mortgage.
VARIABLE-RATE MORTGAGE
The interest rate can vary at fixed intervals from the starting rate by following the fluctuations of a reference parameter, usually a market or monetary policy rate.
The main risk is an unsustainable increase in the amount of the instalments. For the same duration, variable rates are initially lower than fixed rates, but can increase over time, thus causing the amount of the instalments to rise, even substantially. The variable rate is recommended for those who want a rate that is always in line with market trends, or who can bear any increase in the amount of instalments
MIXED RATE MORTGAGE
The interest rate can change from fixed to variable (or viceversa) at fixed intervals and/or under certain conditions specified in the contract. Advantages and disadvantages are alternately those of the fixed or variable rate.
TWO-RATE MORTGAGE
The mortgage is divided into two parts: one with the fixed rate, one with the variable rate.
The dual rate is recommended for those who prefer an intermediate solution between the fixed and variable rate, balancing the advantages and disadvantages of each.
SOFT-RATE MORTGAGE
In some cases public authorities may contribute to the payment of interest on a mortgage.
How much does a mortgage cost?
- TAXES AND TAX BENEFITS
- OTHER COSTS
If the mortgage is granted by a bank, the customer pays a tax of 2% of the total amount, or 0.25% in the case of a ‘first home’ purchase.
The tax is withheld directly by the bank, so the amount the customer receives is less than the amount granted.
If the loan is granted by a non-banking company, e.g. a finance company, the conditions are less favourable.
There may also be other taxes related to the registration of the mortgage or other obligations.
The interest paid on a mortgage loan for the purchase, construction or renovation of the main dwelling is deductible from Personal Income Tax.
The amount and conditions for the deduction are set by law.
To the interest rate and taxes must be added:
- the fee of the financial advisor who will take care of the entire bureaucratic process and assist you from start to finish. Our cost varies from 2% to 3% of the sum disbursed by the intermediary
- the intermediary’s fee for the investigation costs, which may consist of either a fixed amount or a percentage calculated on the amount of the loan
- the appraisal fees, which may be charged for the valuation of the property to be mortgaged
- the notary fees for the mortgage contract and the registration of the mortgage in the land registers
- the cost of the insurance premium to cover damage to the property and possibly risks related to events in the client’s life that could prevent him from repaying the loan. If the intermediary asks to take out life insurance, he must submit at least two quotes from two different insurance companies to the client. It is important to pay attention to the cost of the policy: the one proposed by the intermediary may be more expensive than others offered on the market. If one decides on a policy other than those offered by the intermediary, the latter cannot change the conditions of its mortgage offer
- interest on arrears, if you pay the instalment late. They generally entail a surcharge of between 1% and 4% over the rate agreed for the loan and run from the day of the due date until the instalment is paid
- the annual file management fee, instalment collection fees, costs for sending communications (the full list of costs is in the Information Sheet).
Amortisation Plan
The amortisation schedule is the debt repayment plan. It is important, for mortgages that are or may remain at a fixed rate for the duration of the contract, to ask the intermediary to examine it.
The plan establishes the amount, the date by which all the debt must be paid, the frequency of the individual instalments (month, quarter, half-year), the criteria for determining the amount of each instalment, and the remaining debt.
The instalment consists of two elements:
- capital portion, i.e. the amount of the outstanding loan
- interest portion, i.e. the interest accrued.
There are different loan repayment mechanisms.
In Italy, the most common repayment plan is the so-called ‘French’ method: the instalment is composed of an increasing principal portion and a decreasing interest portion.
In the beginning, mainly interest is paid; as the capital is repaid, the amount of interest decreases and the capital share increases.
The change in the composition of the instalment in principal and interest share can affect tax deductions, the amount of which can therefore change from year to year.
In particular, the deductible portion is the interest portion, which decreases over time.
How to decide which mortgage to choose?
It is important to weigh up the advantages and disadvantages of the type of rate in the light of one’s economic situation and market conditions, considering their possible development over time.
For this it is useful to request the Comparison Sheet in which each intermediary must illustrate all the characteristics of the mortgages it offers.
The rates and conditions offered by different intermediaries can vary, even by a lot.
Today, almost all intermediaries have a website on which they publish the Comparison Sheet and the Information Sheet for each mortgage: it is therefore possible to compare the offers with all the necessary calm.
There are also search engines on the internet that offer guides and suggest the most suitable mortgages for everyone’s needs.
Of course, it is always possible to request the information documents directly from the intermediary.
An important element to assess and compare is the APR (Annual Percentage Rate), which all intermediaries are required by law to publish on their information sheets.
The APR is a summary of the overall cost of the loan, which includes the interest rate (and therefore also the spread applied by the intermediary) and the other expense items (e.g. application and instalment collection costs).
The information documents indicate the conditions according to a standard scheme. Depending on one’s personal situation, the customer may obtain more favourable conditions.
When examining proposals, pay close attention to:
- spread
- APR….. in italian is TAEG
- amortisation plan
- all items of expenditure
- time for granting (must be compatible with the time needed to purchase the property)
- tax savings, which may vary depending on the composition of the instalments (principal and interest share) set out in the repayment plan.
What to know before signing a mortgage
PROVIDING INFORMATION AND DOCUMENTS FOR THE PRELIMINARY INVESTIGATION
With the appraisal, the intermediary verifies the customer’s income, assets and collateral to assess his repayment capacity over time.
Each intermediary has its own procedures, but in general the documents to be submitted concern:
- biographical information, such as age, residence, marital status, any property agreements concluded between the spouses
- information certifying income capacity:
– for employees, a statement from the employer certifying length of service, at least the last pay slip and a copy of the tax return
– for self-employed or self-employed professionals, the latest tax return. - information about the property, e.g. copy of the preliminary sales contract (‘compromesso’), floor plan, certificate of occupancy, last deed of purchase or declaration of inheritance
PRESENTING GUARANTEES
The first guarantee that the broker requires is the mortgage, which gives him the right to have the property sold if the client fails to repay the loan.
To determine the value of the property, and thus of the collateral, the property is first subjected to an appraisal.
The client may live in the mortgaged property and may rent it out. Selling it, on the other hand, may be more complicated precisely because of the lien on it.
The lender may require other collateral in addition to the mortgage, for example when the client has a low income compared to the instalments, does not have a stable job or is applying for a mortgage for more than 80% of the value of the property.
Among the most common guarantees is the surety bond, issued by a party other than the customer applying for the mortgage.
With the surety, the guarantor is liable for the repayment of the entire loan with all its assets.
ASSESSING THE TIME FRAME FOR OBTAINING THE LOAN
The time for obtaining a mortgage for non-resident foreign clients may be longer than for Italian clients. From the submission of the documentation and the actual disbursement of the sum, it usually ranges from 60 to 120 days.
THE MAIN STEPS
- application and submission of documents
- assessment of income
- technical expertise and notary’s report
- final decision on granting of financing
- signing of contract
- disbursement of the loan.
A major financial commitment
A mortgage is a major financial commitment to be borne over time, both for an individual and for a family.
Already at the time of application, it is essential to assess whether one’s income is sufficient to pay the instalments.
During the mortgage period, unforeseen events may occur that require new outgoings (medical, household, children’s expenses) or reduce income (loss of job, redundancy, illness).
Before any application for a mortgage or loan, you should always consider whether you are not getting into too much debt.
If you do not pay your instalments on time, the intermediary charges interest on arrears, which is added to the amount owed.
In the most serious cases, the intermediary can have the contract terminated.
If the intermediary is a bank, the bank may dissolve the contract for:
- non-payment of even one instalment
- delay of more than 180 days from the due date in paying even a single instalment
- delay (between 30 and 180 days from the due date) in the payment of instalments more than seven times.
If the bank terminates the contract, the customer shall repay the outstanding debt immediately.
If he cannot repay the debt, the intermediary may have the mortgaged property attached and sold at auction.
If there is a guarantor, he too is obliged to repay what is owed. The intermediary may also report the untrustworthy customer to the Central Risks Bureau, a report that jeopardises the possibility of obtaining financing in the future.
If the instalment over time proves to be too high, seek a solution with the intermediary immediately
If the customer cannot always pay his mortgage instalments on time, it is advisable for him to contact the intermediary promptly to seek a solution together.
Firstly, it is possible to renegotiate, for example, the type of rate, spread and duration, without the notary’s intervention because the original mortgage remains valid.
Another possibility is the temporary suspension of payments, to overcome the moment of difficulty.
Alternatively, it is possible at any time to transfer the loan to another intermediary, without any charge or penalty.
This is known as portability, which allows the mortgage to be repaid using the same sum granted by a new intermediary and keeping the original mortgage.
The sum will be repaid on the terms agreed with the new intermediary. The customer has no right to obtain a new loan. However, if this is granted to him, the old intermediary cannot prevent or hinder the transfer of the mortgage. The customer does not have to bear any costs, not even indirect costs (e.g. commissions, fees, charges or penalties), either for the termination of the loan with the old intermediary or for the granting of the new loan.
Warning!
In the event of difficulties in paying the mortgage, avoid turning to operators who are not registered in the registers provided for by law.
Clarifications & Complaints
For any useful information, the customer may also turn to the financial adviser who handled his or her loan file at the bank’s centre.
The customer may also submit a written complaint to the bank by registered letter with acknowledgement of receipt or by email.
The bank’s complaints department must reply within 30 days.
If the customer is not satisfied or has not received a reply, he/she can appeal to the ABF – Arbitro Bancario Finanziario.
The ABF is a dispute resolution system between customers and banks, which offers a simpler, faster and cheaper alternative to going to court.
For more information: www.arbitrobancariofinanziario.it
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