Obtaining a Bank Loan/Mortage For Your Property in Malta
Property buying is generally speaking, an activity which most people will try to tackle on their own steam, financially speaking. Having enough money to make your purchase is definitely easier, simpler and more cost effective than having to take out a home loan to do so. But the reality out there is somewhat different from the ideal world, and most people would have to resort to apply for a bank loan in order to be able to afford the property they require.
A property may be required for residential or commercial purposes, and in either case diverse bank loans can be applied for and obtained should specific criteria be fully satisfied. Residential and commercial properties are governed by very different kinds of legal parameters and as such entail the requirement of different documentation, different bank charges, and different interests rates.
A first step towards obtaining a bank loan is to actually visit a bank with the exact amount you require to borrow in your mind as well as a clear idea of what the property you aim to purchase is all about. Is it a first home, a second home, a commercial entity, a property you aim to purchase with the intent to let it out?
You may be required to present certain documents to allow the bank to process your request further. Whilst it may seem simply straightforward to approach a bank and ask what sort of documents must be presented, in certain cases a meeting with a specialised bank employee will help clear any misconceptions and allow you to understand exactly what the bank loan you require entails.
If you are a local you will be eligible for 90% funding, whereas if you are a foreigner, depending on the bank you may be able to get a maximum of 80%. Foreigners are required to provide different criteria to ascertain repayment will be made including bank statements, references from banks and other authorities and will also have to go through certain due diligence procedures.
Although most banks give the impression that anybody can get a loan for the purpose of property acquisition, this is not always so. There are certain situations in which a bank loan may not be possible. If you are very young and still do not have a stable and secure employment you may not be eligible for a bank loan unless this can be secured in some way. Even if you do have a stable employment, should your income not reach the required annual turnover to cover a pre-set monthly repayment scheme, you may not be eligible for a bank loan. If your employment is contract based and not of a fixed duration, you may be refused a loan.
However, if this bank loan is being applied for between yourself and a partner, your partner's income may suffice to guarantee the repayment criteria. You may have to rethink your purchase and opt for a smaller property or for a cheaper one in order to remain within the parameters of the bank loan which your income can afford.
On the other hand, even if you have a good income, but you are already over a certain age, the repayment period may be too short between now and your retirement to allow you to make good for the repayment. This may sound unfair but the bank will need reassurance that you would be able to make your repayment within the time-frame left until you reach pensionable age. Once again, if you are not able to fulfil the repayment criteria for your age bracket, you may need to reconsider the kind of loan you require, the kind of property you want to purchase, and adjust accordingly.
If you intend to sell a property in your possession in order to finance the purchase of a new property, you may be tempted to apply for a bridge loan, which will cover you until you secure the aimed-for sale. Most banks used to allow bridge loans pretty frequently in the past, but these bridge loans are now less popular and may involve very high interest rates, which might make this option highly unsavoury for your pocket.
Your first step before you start looking for property would be to go to your local banks to understand out how much money you may loan out. Take your last three pay slips, your previous Tax Return or FS3, so you are equipped with what the bank is required to give you an estimate.
Once you have signed a Promise of Sale you will need the prepare the following to apply for your bank loan in able to purchase the property in Malta or Gozo:
- A recent pay slip and FS3 (Annual Employee Statement of Earnings reconciliation) as evidence of income*An architect’s estimate of the property value
- Any building permits and plans
- Records of any existing financial commitments, including credit card debt and any other loans
- A photocopy of the applicant’s ID card
- A copy of the preliminary agreement
- If the person applying for a loan is not already an account holder with the bank, a character reference might also be necessary
- A complete life insurance policy is required for any home loan, as is a building insurance policy.
Generally, as mentioned above the bank will provide 90% funding, payments are based on 30% of your net combined income and the loan term will be a maximum of 40 years up to the age of 65 years.
It is wise to shop around the different banks to inform yourself and compare home loan and commercial property bank loan packages. Remember to also take note of the regular government legal notices which are issued from time to time and which give benefits for certain property developments, renovations and purchases, also via tax deductions. These benefits may actually allow you to re-think your loan parameters as was the case of the 'first property subsidy' which came into effect between 2013 - 2016.
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