Mortgage - Financing In Italy
Financial guide to buy a real estate in Italy
You don't necessarily have to win a lottery or inherit a lot of money to buy real estate in Italy....well unless you are looking for a place in downtown Rome or Milan...
If you are planning to buy real estate in Italy you need to decide how you are going to finance this new property.
Unless you plan on paying the entire amount in cash you will have to get a mortgage either in US dollars or in euros depending upon exchange rates. If you think the Euro is low, better get financing in US Dollars in the States. If you think the euro is high, but it is going to go down, better get financing in Euros and pay off the loan with cash.
You need $100,000 and the euro to dollar rate is 0.80 - the dollar being stronger: get a $80,000 home equity loan in the US, pay the entire amount of the house at this low exchange rate and slowly pay off your controlled mortgage in the US.
You need $100,000 and the euro to dollar rate is 1.90 - the euro being stronger: Do not get a $190,000 dollar home equity loan here in the US, instead get a mortgage in euros over in Italy, pay off the quotes until the dollar raises against the euro and when the dollar is back to 1 : 1 you have the option to pay back the remainder of the loan.
You will have to assess which currencies you will be required to deal in. If you take your financing back to the United States then your mortgage will be in dollars. After raising your financing in dollars, you would be required to do a money transfer for the required amount to Italy. Considering the fact that Italy is a part of the European Union, you would be required to exchange your dollars to euros.
Alternatively, if you take financing in Italy then the financial institution will do all the calculation in euros and you will have to convert those figures to dollars to understand what you are really spending.
That brings us to the question, how should you calculate your overall cost?
It is important you are able to trace every penny you spend, calculate how many euros you are getting for your dollars and what these euros are actually buying you. Keep in mind that, usually, when buying real estate in Italy costs include:
- Cost of the property
- Commission to the real estate agent
- Applicable fees
- Local taxes
- Property Insurance
- Any property repair charges
- Money Transfer Fees
Up to 20-30 years ago or so, Italians could only finance around 50% of the purchase price of real estate. Buying a house was a major financial undertaking not only for the buyer, but also for close friends and family since they would all chip in. Now mortgages are available in Italy with as little as 10% down, the final decision is up to the bank and it is usually considered in a case by case scenario.
It would be prudent to speak to a financial advisor, as he or she would be able to guide you through the process of financing your new property. Remember your tolerance for currency fluctuations, if you get your mortgage in euros: A 1000 euro a month mortgage in 2002 was 850 dollars/month. In 2008 however, that same mortgage was 1600 dollars/month. Today, in March 2015, is down again to 1200 dollars/month.
The financial advisor can guide you towards the correct mortgage options you can afford at your current income level. If you already own a property here in United States, then you could refinance, get a second mortgage on your revalued home and use the loan to purchase real estate in Italy. In this case, you will not be subjected to currency fluctuations.
Anyway you chose to do it, you will discover the principles of mortgages are essentially the same across nations, whether it is United States or Italy. However the financial institutions here in United States and in Italy have unique guidelines for how they write loans and one lender's guidelines could be more favorable to you than another. Remember that each option offers its own pros and cons and thorough research is needed before making a final decision.