Did you know that currently the interest rates on mortgage loans for purchasing a property with a mortgage loan are around 31% to 33%? This is one of the main reasons why many Bulgarians choose this method of financing for their new home.
As real estate experts, we see every day how many buyers take advantage of the fact that a number of banks finance up to 90%However, not everyone realizes that banks have specific income requirements for applicants. Usually the maximum loan amount does not exceed 5 times the annual net income. Moreover, according to the latest BNB regulations, monthly payments on all loans must not exceed 50% of net monthly income. Some banks even apply stricter internal rules, limiting the debt-to-income ratio to 30–35% for longer-term mortgages.
Another often overlooked aspect of buying a property are the additional costs such as notary fees and local taxes. For example, the local tax for acquiring a property in Sofia is 3% of the purchase price, which represents a significant additional expense for buyers.
In this article, we will take a detailed look at the entire mortgage loan application process, the required documents, and help you understand when it is appropriate to consult with specialists such as: Credit Center, who are an established partner in mortgage brokerage. Our goal is to provide you with clear and practical information to make an informed decision when purchasing your new home.
Types of mortgages and what you can finance
When it comes to purchasing a property with a mortgage, we must first clarify that there are two main types of mortgage loans in Bulgaria, which have different conditions and purposes.
A target mortgage loan is one in which the bank finances a specific purpose – most often the purchase of a home – with the funds being transferred directly to the seller. You can usually get financing up to 85% of the market value of the property, and under certain conditions – up to 90%, especially for properties in large cities. The repayment period is a maximum of 30 years, according to the requirements of the Bulgarian National Bank, which allows for lower monthly payments. Target loans are offered with more favorable interest rates - in the range between 2.45% and 3.75%, depending on the bank and the customer's profile.
On the other hand, a non-purpose mortgage loan (also called a consumer loan with a mortgage) gives you the freedom to use the funds for whatever you decide, without having to prove the purpose to the bank. However, with this loan:
- The interest rate is up to 1 percentage point higher
- The maximum financing amount is lower – usually up to 60-70% than the property valuation.
- The repayment period is shorter – usually up to 25 years
With a mortgage loan you can finance:
- Apartment or house to live in
- Residential building or villa with adjoining yard and garage
- Detached garage
- Office, shop or commercial premises
- Regulated land for residential construction
- A “rough construction” dwelling under certain conditions
- Construction and finishing works
- Renovation of an existing property
There are also specialized mortgage loans for refinancing existing debts, as well as for Bulgarians living abroad.
In some cases, it is more profitable to mortgage another property than the one you are purchasing. This is a suitable strategy for:
- Desire for 100% financing of the new property
- Purchase of a property under construction before Act 14
- Acquisition of property announced for public sale
- Buying a vacation property or country house, which banks finance at a lower rate
- Purchase of a plot of land, which in itself is rarely accepted as collateral
Careful consideration of the type of loan is key to successfully financing your new property.
Conditions for obtaining a mortgage loan in Bulgaria
To successfully purchase a property with a mortgage loan, you must meet certain requirements that banks in Bulgaria set. First of all, the candidate must be 18 years old and have a permanent employment contract that is not on probation. Some banks require a minimum work experience of at least 1 year.
A key factor is your income – the borrower must prove an income of which 50-65% is sufficient to cover all monthly obligations, including the installment on the new loan. From October 1, 2024, the BNB introduced strict requirements – on the borrower. The installment on all loans must not exceed 50% from income.
It is also mandatory to have:
- Regular social and health insurance
- Clean credit history with no delinquencies in the last 5 years
Banks use several methods to assess your creditworthiness:
- Debt-to-income ratio – shows how much of your net income will go towards paying off your credit obligations. With a monthly income of 2,000 BGN and a down payment of 800 BGN, the debt ratio is 40%.
- Net residual income – the amount that remains after deducting all monthly loan payments.
- Loan amount relative to annual income – usually banks approve a loan up to 5 times the annual income.
It is important to note that age affects the maximum loan term. The age of the borrower, added to the term of the contract, should not exceed 70-75 years. For clients over 70, a debt ratio below 60% and life insurance are required.
Each bank may have additional approval requirements, so it is advisable to consult with specialists who will help you choose the most suitable offer according to your individual profile and needs.
Additional costs and tips when buying a property
When purchasing a property with a mortgage, you need to anticipate significant additional costs beyond the price of the home itself. These costs can amount to 10-20% of the property value, which requires careful financial planning.
First, you will be required to pay a notary fee, which is calculated according to the price of the property. For example, for a property worth between 100,001 and 500,000 BGN, the fee is 730.50 BGN plus 0.2% on the amount over 100,001 BGN. In addition, you owe a fee for registration in the Property Register in the amount of 0.1% of the sales price, as well as a local property acquisition tax, which in Sofia, Plovdiv and Varna reaches 3% of the property value.
A mandatory condition for a mortgage loan is the conclusion of property insurance, and many banks also require life insurance. The first annual policy must be paid before receiving financing. According to the legislation, you have the right to choose the insurer yourself, as long as it provides equivalent coverage to that required by the bank.
Therefore, total costs may include:
- Notary fees for acquisition and mortgage: 520-900 BGN.
- Local tax (2.5% for Sofia): 2,500 BGN for a property worth 100,000 BGN.
- Broker commission: 3000 BGN at 3% commission
- Bank fees and insurance: about 500 BGN.
To save time and money, consider working with a credit counselor. These professionals save you the hassle of visiting banks, collecting offers, and negotiating better terms. They also assist in preparing documents and selecting an appraiser. It is important to know that their services are usually free, as they receive a commission from the banks.
Don't underestimate the costs after the purchase - annual property taxes, garbage fees, and mortgage renewals every ten years. It's also a good idea to set aside funds for unforeseen expenses such as inspections and certifications.
Conclusion
Buying a property with a mortgage is a serious financial step that requires careful planning and an informed approach. Undoubtedly, the current low interest rates of around 31% make this option extremely attractive to many Bulgarians. However, we must clearly assess our options before taking this step.
A basic rule of thumb when it comes to mortgage lending is to not allow your monthly payments to exceed 50% of your income. Therefore, before you start looking for a property, set a realistic budget that includes all additional costs. Also, remember that the type of loan you choose – targeted or non-targeted – significantly affects the terms and financing options.
The required documents and income requirements, although strict, ensure that the loan decision is financially sustainable for you. Of course, we are not talking only about the purchase price of the property. It is important to also consider all the accompanying costs such as notary fees, local taxes and mandatory insurance, which can reach up to 10-20% of the value of the home.
As experts in the field of buying, selling and renting real estate, we at flatimo We know how important a step for our clients is financial security in the process of finding a new home. Our experience shows that consulting with a specialist from Credit Center often leads to more favorable terms and saves time and nerves in collecting the necessary documents, helping you find the most suitable solution for your financial situation. Finally, remember that a mortgage loan is a long-term commitment, so you should be completely confident in your decision and choose an offer that meets not only your current needs, but also your long-term financial plans.
