Real estate law

May a foreign resident get a mortgage from an Italian Bank in the process of buying a property in Italy?

Mortgages for buying property in Italy

What is the procedure? What documents are needed to be submitted?

The answer is YES! Non-Italian residents are legally entitled to obtain mortgages to buy a property in Italy.
However, due to the economic crisis and the new Anti-Money Laundering Regulation, over the past few years Italian Banks had made their mortgage-policy stricter, especially when dealing with non-Italian residents. The reasons for this policy can be found in a) the personal responsibility of Bank Directors who must verify the source of the money that is used to buy the property (concerning the documents to provide the Bank with, see below) and b) properties are no longer considered as sufficient warranty in case the buyer stops paying the mortgage installments (given the difficulty and the costs for enforcing the payment from outside Italy).

Nevertheless, there are still some Italian Banks willing to concede mortgages to non residents; part of our daily work is to prepare a client’s case in order to present it to one of these banks with whom we have an existing and trusted relationship. This is also one of the reasons why it is advisable to appoint us as your local Italian Law Firm so that we can assist you as the foreign buyer in this procedure.

ILF has a strong business relationship with many Italian Banks with whom we are assisting foreign clients for many years so far and this can be the difference between a yes or a no for a mortgage application.

What is the procedure? Which documents need to be submitted?

The process to obtain a mortgage involves several costs, namely:

  1. Mortgage application fees;
  2. Surveyor fees (when applying for a mortgage to buy a property, the bank appoints a surveyor in order to make an Evaluation Report to give the property a value on the basis of which the mortgage will be granted);
  3. Mortgage taxes;
  4. Insurance and translation fees if required.
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The chances to obtain a mortgage for buying property in Italy are conditioned upon several parameters, such as:

  1. The amount of the sum requested as loan; Banks usually grant no more than 60/70% of the purchase price according to the
  2. Evaluation Report drafted by the surveyor appointed (see above);
  3. Applicant nationality;
  4. Financial status of the applicant; in this regard, it should be noted that Italian Banks require to know whether the applicant is capable (from a financial point of view) of sustaining the loan. This is the reason why you will need to provide a copy of the applicant’s last Tax Declaration (which must be translated in Italian and legalized through Apostille or by the Italian Consulate of the Country of residency of the applicant)

The timing to have an answer may vary from case to case. It usually takes a few weeks. Once the application is approved, in cases where the mortgage has been requested for buying a specific property, the mortgage contract is signed in front of the Notary at the same time as the signing of the final deed for transferring the ownership of the property. An officer of the Bank attends the meeting and provides the seller with the check (which amounts to the sum granted as mortgage).

How to get a mortgage in Italy?

In order to request a mortgage in Italy, you will need to provide an accepted offer on a specific property. Before you make an offer for a property in Italy, please bear in mind that the contract may well include an amount of money that you could lose, therefore we strongly suggest you hire one of our lawyers (or use another Italian lawyer) to prepare the offer with you.
Are Italian mortgage rates for non-residents very high?
We are frequently able to obtain the same interest rate via our existing bank relationships for our non-resident clients as our resident and Italian clients.
What is a typical down payment for a house or property in Italy?
This really can depend on the situation. In general, expect your down payment to be higher than it would be in the US or UK. However, we are here to help prepare your individual case to obtain the maximum loan that would be possible as a non-resident,
What are the best Italian banks to obtain a mortgage from?

This can change depending on the bank’s current situation. They may be offering mortgages to non-residents one month and then put this on pause for several months. Luckily, we have established relationships with the banks here and can guide you through the process and apply and negotiate on your behalf.

Sum up of the details for obtaining a mortgage in Italy

  1. Italian Banks usually concede a mortgage that can last from 5 up to 30 years;
  2. Italian Banks usually accept mortgage request for a sum amounting not less than 70,000 euro;
  3. A mortgage cannot be grated for a sum that covers 100% of the cost of the property (the maximum mortgage is typically 50-80% of the purchase price depending on your individual circumstances);
  4. In case the applicant is more than 70 years, Italian Banks usually require for the signature of another (younger) applicant that will be jointly liable;
  5. Generally mortgages are granted for purchasing residential properties. We also regularly deal with loans for hospitality, such as agriturismo, hotels and B&Bs.
how to get a mortgage in Italy

What is the Italian mortgage rate for non residents? How to calculate it?

Interest is a percentage share of the principal, and its amount depends on 3 factors:

  1. Interest rates
  2. Amount of the mortgage
  3. Mortgage term

Here we find out everything a non-Italian resident needs to know about how mortgage interest works, starting with interest rates and ending with how to calculate mortgage interest according to the type of amortization plan.

How does the property mortgage interest rate work in Italy?

TAN and APR: what are they in the Italian Bank system?

Mortgage interest expense is influenced by two factors: TAN and APR.

The TAN represents the Annual Nominal Rate, which is the amount of interest you will need to pay back to the bank.

The APR represents the Annual Percentage Rate and incorporates all those additional expenses that go into making up a mortgage. The APR thus represents an indicator of the total cost of financing.

Also known as the Summary Cost Indicator, the APR includes the following items:

The insurance policies in the case of a mortgage exceeding 80% of the cost of the property;
The costs related to payment transactions
The cost of file management, stamp taxes, appraisal fees, notary fees…
All other expenses related to financing.
Since it is an indicator, the APR is not used to calculate the interest rate of the loan.

When calculating loan interest in Italy, you refer to the TAN, which represents the pure interest rate applied to the principal amount. The TAN can generally be determined as a fixed or variable amount.

Fixed or variable TAN?

When applying for a mortgage, the most difficult choice is precisely this. If the fixed rate provides you with the security of no nasty surprises in your installments, the variable rate could save you a lot of money.

How do they work? The fixed rate represents the sum of the spread that the Italian bank decides to apply and the market benchmark (I.R.S) set at the time the contract is signed.

For this reason, the advantage of the fixed rate is that it guarantees a constant installment throughout the duration of the loan.

The variable rate, on the other hand, consists of the sum of the spread that the bank decides to apply and the Euribor reference financial index, which is not fixed but fluctuates according to trends in the market.

This means that in the case of variable rate, the amount of the installment increases or decreases periodically according to market trends.

Interest calculation on Italian mortgage

Calculating interest on the mortgage on an annual basis is done with a simple mathematical formula: principal loaned x annual nominal rate x duration of the mortgage in days / 365.

For calculating interest on the individual installment, the formula becomes: R=(1+1/{(1+i/12)^n-1})*i/12*M where (i) represents the annual interest rate, (n) the number of monthly installments to be paid, and (M) the amount of the mortgage.

The amortization schedule applied in Italy

Once the loan is taken out, the bank provides the borrower with the amortization schedule, which is a table showing how the loan will be repaid:

  • the amount of each individual installment to be paid (usually monthly) and its due date.
  • The interest portion and the principal portion for each installment
  • Loan repayment can be done with French or Italian-style amortization. Let’s see in practice how interest on the loan is calculated in the two types identified.

Calculating interest on the mortgage with French-style amortization

The most common type of amortization is French-style, in which the installment remains constant but over time the weight of the principal portion (which increases) and the interest portion (which decreases) varies within it.
To calculate the interest on each installment, the formula must be applied: Principal x Annual Interest Rate / Number of Annual Installments

At the time of the first installment, since we have not yet repaid any of our borrowed capital, interest will be calculated on the entire principal.
To figure out how much interest we are going to pay in the second installment, we will have to calculate the portion of the principal we have to go to repay, i.e.:Portion of principal = installment – interest

Now we can go on to calculate the interest expense of the second installment on the remaining principal, given by the initial principal minus the calculated capital share. In this case, the interest expense will be:Remaining principal x Annual interest rate / Number of annual installments.

Interest calculation on the mortgage with Italian-style amortization.
In the case of Italian-style amortization plan, the installment rate changes over time while the Principal Share remains constant. This means that the Principal Share has a fixed value and does not have to be recalculated at each installment.
The formula remains the same: Remaining principal x Annual Interest Rate / Number of annual installments. From time to time, the value of Capital Share repaid in the previous installment should be subtracted from the remaining principal.

How to calculate mortgage interest expense for tax deduction in case the non-resident decides to relocate permanently in the property purchased in Italy?

An Italian Resident tax deduction equal to 19% of the interest expense and related incidental charges is due for mortgages on the primary home.
The formula for calculating the share of mortgage interest expense deductible in the Italian Tax Return is as follows: cost of house purchase x interest expense paid / amount obtained under the mortgage.

The deduction is on a maximum amount of interest expense and related incidental charges of 4,000 euros. In the case of a joint loan, this limit is to be apportioned among the borrowers equally or according to the different percentages that can be derived from the loan contract itself.

In fact, for co-mingled mortgages, the interest deduction can be claimed by both co-borrowers, regardless of the percentage of ownership of the property.

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Why do I need an Italian attorney to be represented in obtaining a mortgage?

Purchasing a property can be a complex process, particularly if you are a non-native to the country where you wish to buy the property. Italy, in particular, has a unique legal and bureaucratic system that can be challenging to navigate without the help of an experienced attorney. This is especially true when it comes to obtaining a mortgage to finance the purchase of a property.

There are several benefits to appointing our Firm when you want to obtain a mortgage for buying a property in Italy. Here are some of the reasons why you should consider hiring us

  1. Knowledge of the Italian Bank system
    ILF are experts in the Italian legal system and can provide valuable insights and guidance on navigating the legal requirements and procedures for obtaining a mortgage in Italy. This includes understanding the documentation and formalities required, as well as the relevant laws and regulations that govern mortgage financing in Italy.
  2. Assistance with negotiating the mortgage terms
    ILF attorneys can assist you in negotiating the terms of your mortgage with the lender. This includes ensuring that the interest rates and repayment terms are fair and reasonable. They can also help you understand the implications of any clauses or conditions in the mortgage agreement, such as penalties for early repayment.
  3. Protection of your interests
    ILF Bank Brokers will represent your interests throughout the mortgage application process and ensure that your rights are protected. They can review all of the legal documentation and advise you on any potential risks or issues that may arise during the mortgage application process.
  4. Communication with lenders
    ILF English speaking attorneys can communicate with lenders on your behalf, helping to streamline the mortgage application process and ensure that all the necessary documentation is provided in a timely and accurate manner. They can also help you understand the lender’s requirements and expectations, making the process smoother and more efficient.
  5. Peace of mind
    Finally, hiring ILF Firm to assist you with obtaining a mortgage can give you peace of mind. You can be confident that you are following the correct procedures and that your interests are being protected. This can help reduce the stress and anxiety that often come with a major financial transaction, such as buying a property.

It is important to understand that obtaining a mortgage in Italy is very different from countries such as the US and UK, especially when it comes to the possibility of losing money from the moment you sign an offer if you have not received guidance, to understanding the local laws that will apply to your particular property and any penalties you may become liable for if something has not been handled correctly even before you were the owner.

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If you are looking to buy a house and you need a mortgage, do not esitate to apply for our legal assistance.

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The contents of this page should not be taken as an authoritative statement of Italian law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

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