Italy has long attracted discerning foreign home buyers in search of that magic place to enjoy.
With its glorious history, wonderful climate and diverse landscape, from coastal plains to rugged mountains, Italy is the top destination for most independent travellers.
Once you have experienced the true quality of Italian living close up, being a visitor will no longer be enough.
Like many before you from across the world, you will want not just to visit, but to own a small part of the dream.
Italian Mortgage and Approval Criteria
Italian banks are used to consider non-resident mortgage as a risky transaction, and for this reason their policy is quite conservative when it comes to approve this type of application.
Who can be financed?
Physical persons (individuals) resident abroad receiving an income as self employed of as dependent employee.
What can be financed?
The purchase of first and/or second home in Italy and in some cases property renovation projects.
A foreigner non-resident in Italy looking to secure a mortgage needs to submit an “ad hoc” application to be signed in original in front of the mortgage broker or bank officer.
Preliminary, the applicant needs to have an Italian Codice Fiscale, Passport in course of validity and the confirmation of the current address of residency.
Furthermore it is also requested the applicant to provide the following:
- Home country tax return (min. 2 years)
- Home country credit report
- Proof of funds for the downpayment (Equity)
and this so the applicant to demonstrate that his/her income is sufficent to refund the loan in monthly rates for the whole duration of the contract.
It is of crucial importance that the applicant is paid in a “so called” stable currency so to minimize the currency risk; the accepted currencies are: EUR, USD, CAD, GBP, AUD, SGD, HKD, DKK, NOK, SEK, CHF, JPY.
Income documents need to be translated into Italian language (sworn translation) and legalized.
Mortgage Terms and Conditions
- 50-60% LTV is the maximum that can be secured
- 30% Debt to Income (DTI) ratio applies.
- Maximum age to apply is 75 years.
- Maximum duration of the mortgage contract is 25 years, but generally the banks won’t agree more than 15 years.
- Interest rate (fix or variable) and French amortisation schedule are almost the same as for the residents
- No penalty in case of anticipated termination (and payment) or “moving” of the contract
- Opening of an Italian bank account with the lender
- Mortgage Tax is equal to 0.25% of the lent amount if it is about a first home buyer; 2% of the lent amount refers to a second home purchase
- Property Insurance (fire) represents a one-time cost to be paid at signature of the mortgage agreement and valid for the entire duration of the contract; the cost depends on few factors (mortgage duration, property value, etc.); For example for a 15 year + € 300.000 mortgage the cost of the Insurance would be about 800€
- Banking investigation, typically 1% of the granted mortgage amount but never exceeding € 2.000 cost
- Survey, about 500€: for luxury real estate the cost of the survey needs to be verified case by case
- Notary Fee, for drafting, registering and filing of the Mortgage agreement in the competent institutions; If the buyer is not able to understand Italian language it is reccommended to hire the service of a Proxy (through a limited Power of Attorney) so to avoid the cost of the translation of the mortgage agreement (which typically consists of 30-40 pages)
- Mortgage Broker (if hired), typically between 1.5% and 4% of the lent amount.
It is also required that the applicant could show the evidences of a binding document (accepted Proposal of purchase, signed Preliminary contract, Buying Option agreement, etc.) as a serious link with the property he/she wishes to buy.
…. And in the case the buyer won’t be able to secure an Italian Mortgage?
No worries! If the buyer is really determinated to buy that property there are several Vendor Financing contractual solutions available so to “replace the mortgage” and help the transaction going through.
Each Case will have to be analyzed in details so to set the ad-hoc buying strategy accordingly as well as the choice of the type of contract more suitable for the curcumstance.
However, the buyer will always have to consider these type of contracts to be a win-win scenario; in particular, according with our long lasting experience in this specific legal and investment field, we warmly reccommend the Buyer to take into consideration when placing the Reservation Offer the following:
- Paying for the asking price in full (eventually asking just for a small discount, i.e. max 5%)
- Offering 40-50% downpayment, as confirmatory deposit
- Keeping the duration of the contract within maximum 3 years (very rarely it could go up to 5 years)
Identikit of the property:
In order to have good chance to convince the owner selling his/her property making use of one of the Vendor Financing Programs – and in accordance with our last 4 years records – we believe that the property should:
- Not be a brand-new one; the property considered as a vendor finance friendly one generally consists in an object needing of a significant renovation
- Not be located in a core real estate market (Milan, Rome, Florence, Venice, top turist destinations, etc.) in Italy
- Preferebly have some small legal issues that makes the property not elegible for a mortgage
All these Programs are fully implemented into the Italian legal system, so the buyer securing one of these type of contracts will be granted with full legal protection.
Through the years we have set several ”artisanal” drafts so to have an answer (and for instance an ad hoc contract) for each case.
All our drafts include a bespoke financial sustainability plan as well as a tailor made “exit strategy” done on the buyer behalf and very best interest.
At Clemente Law Firm we are highly specialized in Property Vendor Financing solutions having already helped several clients buying home in Italy with this method.
We can also help you showing the way for and Italian Mortgage.
Please get in contact if you have found the property you wish to buy; we’ll help your dream come true.