How to get a mortgage in Italy to buy a property
Is a non-resident foreigner entitled to apply for a mortgage in Italy? Will an Italian bank be accommodating? In a nutshell: does a foreign buyer who asks an Italian financial institution to subsidize his/her real estate investment have any chance of success? Because mortgages are the prevalent form of real estate loan offered to buyers worldwide, the above questions, and other queries connected to these, are extremely common among foreign residents who intend to purchase property in Italy. In general the answer is: of course! In fact, just as there is no existing rule or law that prevents foreign residents from buying property in Italy, there is no regulation that outlaws foreigners from getting a mortgage. In general, Italian legislation and current banking rules establish that any individual or company able to prove his/her/its ability to repay a loan over the long term is legitimately entitled to a mortgage. On the other hand, prospective purchasers should bear in mind that Italian banks have always been very “careful” lenders; moreover nowadays the peninsula’s main financial institutions are even more so, both with Italian and foreign residents. The main issue is that Italian banks are traditional-type institutes, not commercial ones, and thus wary of granting loans even to Italian nationals. As concerns mortgages to foreigners, banks’ officials are all the more reluctant to run the risk, if they don’t have to, because if the non resident beneficiary of the loan stops repaying mortgage installments it is very hard for the Bank to recover balances due abroad.
As comprehensively detailed and elucidated in the Bank of Italy’s Guide to Mortgages (online English version available here) there are 4 types of mortgages:
- Fixed-rate mortgage – the rate of interest does not vary but stays the same as established in the the contract for the full period of the mortgage
- Variable-rate mortgage – the interest rate (after a first period as set by the contract) is revised at predetermined intervals to reflect market fluctuations
- Hybrid-rate mortgage – the rate of interest may be converted from variable to fixed at predetermined periods of time provided the necessary conditions (as stated in the contract) apply
- Split-rate mortgage – this type of mortgage is “split” into two parts, one base on a fixed interest rate,the other on a variable one.
Deciding which type of mortgage to apply for, and thus selecting the interest rate and payment terms, is up to the prospective buyer. As elsewhere the choice largely depends on his/her financial situation as well as market conditions. In general all applicants for mortgages, whether Italian or foreign, are advised to compare different banks’ offers: terms and rates of interest are conditional and subject to vary greatly from one financial institution to another. An important element to bear in mind and appraise when making this choice is the TAEG, Tasso Effettivo Annuo Globale, APRC (Annual Percentage Rate of Charge) in English, which indicates the mortgage’s total cost per year enunciated as a percentage of the loan’s amount. The TAEG comprises the interest and all other relevant expenses, such as payments’ collection, taxes, processing etc..
Prospective applicants should bear in mind that all Italian banks (and other financial operators offering mortgages) are by law required to make this rate public stating it clearly in the institution’s General Information Sheet for Mortgage Customers and publishing it on their website.
How does a non-Italian investor who wants to apply for a mortgage get under way?
The process for applying for a mortgage in an Italian Bank is quite straightforward. The first step is submitting one’s request to the bank, which will then proceed to ascertain the applicant’s income, assets and proposed collateral to evaluate his/her capability in settling installments due and repaying the loan. Basically, what the bank needs to do is assess whether the prospective borrower is creditworthy and dependable.
Each financial institution’s General Information Sheet enumerates and itemizes the documents and information that applicants are required to supply to initiate the bank’s evaluation process.
In order to process an individual’s mortgage application Italian Banks usually request the following:
- Valid current ID documents
- Residency Certificate
- Certificate of good standing
- Last Tax Return (to demonstrate the source of the income)
In addition to these, if the foreign applicant has his/her own bank account elsewhere the bank may ask for
- a Reference Letter from the applicant’s Bank
Banks may also request employed persons for further detailed proof of income, such as their last paycheck and/or a statement from the employer. Self-employed individuals may be required to supply their Chamber of Commerce certificate and/or registration to specific professional associations
To evaluate a company’s mortgage application Italian Banks will generally require:
- Corporate Certificate
- VAT Certificate
- Personal ID documents of the shareholders that own at least the 25% share of the company (final beneficiaries)
- Last Officially Deposited Turnover
Finally, banks may also demand both individuals and companies to present itemized specific information on the property to be purchased. Documents required may comprise the preliminary sales contract, floor plans, habitability certificates and deeds.
Once the bank has obtained and reviewed all the applicant’s paperwork and documents it assesses if he/she/it proves to be creditworthy. If so, the bank formulates a tailored loan proposal which is (compulsorily) drafted on the standard ESIS form, the European Standardized Information Sheet. As previously said mortgage applicants are strongly advised to compare different institution’s loan proposals prior to signing the contract. On this account it is useful to consider that all institutions draft their offers on ESIS forms, which makes it easier to juxtapose and analyze different banks’ pitches.
Prospective applicants for a mortgage in Italy should also take into account that, by law, they are entitled to a “reflection period” equal to a minimum of 7 days from the proposal draft date to evaluate the offer and confront it with others if desired before subscribing the contract. This implies that the offer presented is binding to the bank for the duration of the period, while the applicant has time to think and ponder.
Last, but definitely not least, what amount do Italian banks generally grant to foreign non-resident applicants? There is no specific rule or minimum-maximum limit for this, so what financial institutions usually do is set a customized amount considering both the property’s value and the applicant’s reliability. It does really vary from one case to another, but our experience teaches us that it is very hard to be able to get financing for more than 50% of the property purchase price;
Our Services
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What we can do for you:
- advise foreign prospective buyers on the available options and solutions to obtain a mortgage for purchasing a specific property in Italy;
- assist foreign prospective buyers in the preparation and collecting of all requested documentation required by the Italian Bank;
- provide translation, transcription, duplication and legalization of all documents with apostille or via consulate;
- insider’s advice on whom to refer to: full assistance in presenting mortgage applications to Italian Banks generally compliant with non-resident applications and whom we entertain preferential relationships with.