How to Obtain a Mortgage as a Self-Employed Worker in Portugal: Documents and Requirements

In Portugal, self-employed individuals (or "recibos verdes") can apply for a mortgage, but the process may be more complex than for employees. To get approval, there are some specific requirements and additional documents to provide. In this article, we will explain how the mortgage process works for self-employed workers in Portugal, what documents are needed, and the most important conditions.

Main Requirements for Obtaining a Mortgage

To apply for a mortgage, the self-employed worker must submit the following documents:

• Proof of income: The self-employed worker must provide tax returns, specifically the IRS declaration and, if applicable, VAT invoices. These documents should demonstrate the income over the last 12 to 24 months.
• Bank statements: Bank statements from the last 3 to 6 months must be provided to show the regularity of deposits and the absence of debts or overdue payments.
• Certificate of activity: A document proving that the self-employment activity is registered with the tax authorities, including the type of activity and the start date.
• Documents related to the property: To formalize the mortgage, the documents of the property being purchased must be provided, such as the property booklet, energy certificate, among others, depending on the bank’s requirements.

Initial Contribution (Down Payment)

The initial contribution (or down payment) is the amount that the self-employed worker must pay upfront when purchasing the property. Typically, banks require between 10% and 30% of the property’s value. For self-employed individuals, it is recommended to pay a higher down payment, ranging from 20% to 30%, to increase the chances of mortgage approval. The higher the down payment, the easier it will be for the bank to approve the application.

Interest Rates and Conditions

Although interest rates for self-employed workers may be similar to those for employees, banks may offer less favorable conditions to self-employed individuals. Some of the conditions that may apply include:

• Higher interest rates;
• Limits on the maximum loan amount;
• Requirement for additional guarantees, such as guarantors or life insurance.

These stricter conditions are a way for the bank to mitigate risks due to the greater variability in the income of self-employed individuals.

Additional Requirements

In addition to the basic documentation, self-employed workers may be asked to provide extra documentation to prove the stability of their economic activity, including:

• Income history from the last two years;
• Detailed tax returns to demonstrate business sustainability;
• Possibility of providing additional guarantees, such as guarantors or financial assets.

The more stable and higher the income, the easier it will be to obtain the mortgage under better conditions.

Proof of Professional Activity

Self-employed individuals must present proof of their professional activity, which includes:

• Certificate of activity or tax registration;
• Income statements, such as recibos verdes, from the last 6 months;
• IRS declaration for the last year.

Documents Related to the Property

The following documents related to the property being purchased must be provided:

• Property Booklet — a document confirming the property’s registration and ownership;
• Energy Certificate — an obligatory document that classifies the property’s energy efficiency;
• Promissory Contract of Sale or Sale Deed — documents confirming the commitment to purchase the property;
• Use License or Habitability License — a document that ensures the property is suitable for habitation.

Personal Documents

In addition to the documents mentioned above, personal documents will also be required, including:

• Citizen Card or valid passport;
• Tax Identification Number (NIF) for self-employed individuals;
• IRS declaration from the last two years;
• Bank statements from the last 3 to 6 months.

Assessment of Payment Capacity

Banks in Portugal calculate the effort rate, which is the ratio between the monthly mortgage payments and the applicant’s net income. For self-employed workers, banks tend to consider only a portion of the total income (usually between 60% and 70%), as the income can fluctuate over time. The ideal effort rate should not exceed 35%, which is the recommended limit for ensuring mortgage solvency.

Other Requirements for Self-Employed Workers

In addition to the standard documents, banks may require additional guarantees. These requirements can include:

• Guarantees in the form of guarantors or additional financial assets;
• Life or income insurance, which protects both the bank and the self-employed individual;
• Income loss insurance, a measure that helps protect mortgage payments in case of unforeseen events.

Tips for Successfully Obtaining a Mortgage

To increase the chances of obtaining a mortgage with favorable conditions, self-employed individuals should:

• Provide proof of stable income: Income stability is key, so it’s important to provide evidence of consistent earnings over the last few years;
• Reduce debt load: The fewer debts or obligations the applicant has, the better the chances of mortgage approval;
• Make a larger down payment: A larger down payment shows more confidence and can improve the chances of approval;
• Consult a mortgage intermediary: Specialists can help find the best conditions and prepare all necessary documentation.

Obtaining a mortgage as a self-employed worker in Portugal may be more challenging, but with proper preparation and meeting the requirements, it is possible to secure financing under the best conditions. If you need additional information or assistance, it is advisable to seek help from a financial consultant.