Buying Property in Brazil : Mortgages

Daniela Quiros,  Saturday, 4 January 2014


This article is part of a series of 8 articles about buying property in Brazil. The other articles in the series cover the following topics:

Mortgage Market in Brazil

Currently, the mortgage situation in Brazil is in transition. Until recently, laws and courts here were in favor of the borrower in case he goes default on a mortgage; so, the banks could not repossess the property, and consequently, were reluctant to lend money. A few years ago, the law changed allowing the banks to legally own the property until the mortgage is paid in full amount. Thus, a borrower is not in legal possession of a house until he pays the full mortgage amount. The Brazilian mortgage market is said to be growing rather fast now, but currently it only makes 5.3% of the national GDP. The Brazilian government is investing large amounts of money into affordable home construction, encouraging banks to loan more money to domestic borrowers.

The Brazilian government forecasts the local mortgage markets growth to 600% by 2014, with increasing mortgage value to 12% of GDP. Consequently, the real estate market will experience the increase in prices in the foreseeable future.

Currently, the mortgage market in Brazil is underdeveloped, especially when it comes to lending money to foreign borrowers. Nevertheless, both the local government and the property market itself are pressuring the local banks to offer financing options to foreigners in need of mortgage to buy property in Brazil. Even though acquiring off-plan property is common in Brazil, and foreigners residing in Brazil qualify for a mortgage, international buyers have major difficulties obtaining a mortgage from Brazilian banks and financial institutions.

In theory, the allows foreigners access to financing options on their real estate purchase, but in practice, it does not happen. The cases when it happens are really rare, for example, when a foreigner already has an account with an international bank, such as HSBC and has an immaculate credit history. Other than that, foreign investors in need of a mortgage resort to the seller financing.

Financing By the Construction Company

Construction companies offer lucrative conditions to foreign buyers, with up to 60 months of financing during the construction. Because this is a direct purchase, you can negotiate better options, deadlines, and the number of installments. Sometimes, companies even agree to waive interest rates. Some of them do not require proof of financial solvency, or medical examination from the borrowers. Some construction companies even pay your travel expenses and call it ‘examination tours’ for foreigners to come to Brazil and inspect the construction sites on offer. The Civil Construction National Index, INCC, adjusts the installments, and once the construction is finished, the 12% yearly rate is imposed on the payment plan, further adjusted by Market Prices General Index, IGPM.

The first installment usually consists of about 10 to 12% of the purchase price; there may also be intermediary installments, which can be much higher than the monthly installments.

Basics of Mortgages and Financing in Brazil

As a foreigner, you do have some options when acquiring property in Brazil, including borrowing money from a financial institution or directly from the construction company, which is currently one of the easiest solutions to the problem. In Portuguese, the word for a mortgage is hipoteca.

Currently, only residents with a permanent Brazilian residency and a proof of financial solvency qualify for mortgages in Brazil. The leading financing institution in the real estate market of Brazil is Caixa Economical Federal, a bank owned by the state.

Some of the private banks that offer mortgage options are Santander, and . The loan conditions vary different banks, and it is highly advisable to compare products on offer. Few banks offer financing to foreign residents.

It should be noted that banks charge very high interest rates in real estate loans, irrespective of the financing solution you're going to use, making the mortgage options quite discouraging to foreigners.

Mortgage Prerequisites

The requirements for mortgage application vary with different financial institutions. For example, Bradesco financing option can only offer to finance the real estate purchase with the appraised value not exceeding the maximum limits set by SFH of $750,000, and can only finance $600,000. You also need to be the bank's customer with a good standing in the system, be at least 18 years old, provide proof of sufficient income, and provide proof of not having any restrictions and limiting credits prior to application.

Here is a sample checklist for mortgage application:

  • The buyer’s documents: passport, proof of marital status, proof of employment and financial solvency.
  • The seller’s documents: if the seller is an individual, proof of his marital status, unless he's single; if the seller is a Corporation, company’s identification documents.
  • Property documentation: certificate from the national registry containing property status and the negative lien status, certificates of taxes clearance, cover sheet from the current year property tax booklet.
  • Required forms: personal health statement, or DPS, business consultation signed by the bank representative.
  • Additional documents: ID of the seller and tax identification card CPF , ID of the spouse and CPF, clearance certificate if the seller is a Corporation.
According to Bloomberg's issue of 2012, Brazilian banks start competing in the expanding mortgage market offering better rates and longer repayment terms. For example, the state-owned bank Caixa Economica Federal, which has the lion's share of more than 70% of mortgage loans in Brazil, and Madrid-based Santander offer 35-year mortgages for the first time in Brazil's history. Caixa offers rates as low as 8.85% while state owned Banco do Brasil SA offers rates as low as 7.9% for clients who have accounts with the bank and pay on time.

Brazilians are very cautious in taking on debt; so, a slowing economy makes the banks compete to change the national mentality and make the consumers change their mind.

Comparing Rates

Between Santander, Banco do Brasil, Itau and Caixa, the latter currently offers better rates. Besides, Caixa is a bank with greater experience in loans and mortgages. In Brazil, home loans account for only 5.3% of GDP, compare that to 81% in the US. Brazil's Central Bank lowered the Selic country’s benchmark rate to a 8.5% in August 2012. It was a major cut, and clearly the mortgage market is experiencing evolution, and is deepening. State owned banks compete the most, with Banco do Brasil looking to expand its 3.6% of mortgages in the overall share. Current government has cut taxes on consumer goods and increased the number of low-cost loans in BNDES, a state-owned bank. The president Dilma Rousseff also ordered state banks to lower borrowing costs to encourage private borrowers to apply for mortgages.

What are the possible consequences of a lender going default on a mortgage in Brazil?

Financial institutions retain full ownership of the property until the mortgage amount is paid out in full by the borrower. This is necessary means imposed by the local government to encourage banks, both private and state-owned, to meet the growing demand for housing financing. As a result, the foreclosure is unavoidable.

market has seen a major increase in interest from foreign buyers; the analytics even call it an ‘invasion of foreign buyers.’ Even though off-plan is very popular and safe because of consumer protection legislation, ever more foreigners demand financing options. Overall, the North-Eastern part of Brazil, one of the most popular destinations for foreign buyers, is likely to experience a massive amount of government investments of more than $400 million from construction acceleration program.  

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