Buying property through a bank loan? Be careful with the small print
Bulgarian mortgage loans are no different to those elsewhere in the world - you can get one only if you can prove you do not need the money. If you are a foreigner, however, you will have to work very hard to get a loan, even if you have all the evidence that you are eligible to apply for and receive one. Despite your best efforts at convincing a Bulgarian bank to give you a mortgage, it is likely that you will be refused. And not because the banks do not want to give loans to foreigners, but because they still have not created a system good enough to work with foreign individuals and legal entities.
The problem is that Bulgarian bank mortgage assessors have to check and verify all the documents and papers which foreigners submit in order to prove their income and ability to keep up repayments. It is a time-consuming process. This is why many Bulgarian banks claim that they offer mortgage loans to foreigners, but in fact very rarely issue them. Lucky exceptions are the citizens of Great Britain. British mortgage brokers have been doing an excellent job of selling Bulgarian mortgage products without even having local offices.
To sum up, the Bulgarian mortgage market for foreigners is still very young and it will take some time before it starts working properly. Still, if you knock on the door of every bank, you will eventually find one which is willing to go through all the paperwork and provide a loan. Another problem with mortgage loans is that the real estate market in Bulgaria is very fast moving and the property you decide to purchase today may not be available next week. If you choose a property and then have to wait for a loan, chances are that by the time you have your application approved somebody else will have already bought it. A way to avoid this situation is to pay a reservation fee to the company selling the property to ensure that they will not offer it to other clients for a month or two. Then you have to act very quickly, get all the documents required by the bank, translate and legalise them and hope you get the money. However, there is always a risk that the bank will refuse or will grant it after the reservation period has run out, meaning that you lose your reservation fee. Normally, the time needed for a bank to assess an applicant's capability to cover loan installments is about four weeks, but nobody can tell for certain how long this process takes for a foreigner.
The easiest way to avoid all the paperwork is to use the services of a mortgage consultant. So far there are very few mortgage agencies on the Bulgarian credit market, but most of them are competent enough to help you proceed with your application. The process is relatively simple. At the initial stage you and your mortgage broker discuss your needs and preferences and the broker advises you about the necessary documents you need in order to apply. Once your consultant has enough information about your income and the property you want to purchase, he or she should present you with a preliminary offer within two days. Then it is up to you to collect all the documents and send them by mail or bring them to the mortgage agency personally. Then your broker takes the documents to the bank and you should have to wait no more than three days for provisional approval. If your preliminary application is approved, usually you have to submit a huge pile of additional documents and wait for about a month to find out whether the approval has been confirmed.
If you cannot participate personally in every stage of the application process, you can authorise a person of your choice to represent you. Nevertheless, you will need all the patience in the world because the list of the documents you must obtain and submit is endless.
The real trouble with Bulgarian mortgages is that banks usually provide only 60 to 75 percent of the property price, but the mortgage covers the entire property, although you have invested your own money. As if that was not enough, interest rates for foreigners are higher than those for Bulgarians - from 6.9 to 9.9 percent. Experts forecast that in the next three years interest rates will decrease to five-seven percent, which is still higher than those in Spain or France.
According to some Bulgarian finance experts, interest rates in 2007 will remain stable and it is expected that they will start decreasing in 2008.
Some banks require a foreign borrower to provide the contact details of a Bulgarian citizen whom they can call in case a problem occurs during the loan application. Other institutions require a joint applicant who is responsible for repaying the loan in case the borrower defaults. Some require both.
The Docs you Need
An application form, a copy of ID documents, a credit rating report, last year's tax return, a bank statement, a bank reference, an accountant's certificate, pay slips, a marriage certificate (where applicable), an employer reference, a preliminary purchase agreement, property ownership documents, a property encumbrance certificate, a property tax value certificate and a property market value certificate. If you are a UK or US citizen you will also need the "P-60" certificate or "W-2" certificate respectively.