As financial advisors, we often guide people through choosing the right mortgage, and we've seen dozens of applications go smoothly or stumble over details nobody really explains. This is the first of three instalments where we share what we've learned by watching the process up close. Today we cover the least exciting but most important part: paperwork, prerequisites and insurance — the stuff that separates a "yes" from a "let's think about it".
What paperwork does the bank ask for?
When guiding someone through their first mortgage, the first thing to say is: get ready to open every drawer. The bank isn't trying to make life difficult — it just wants to be sure the loan will be repaid. It's business, nothing personal.
If you're an employee, you'll need your latest payslips and your tax return (sometimes also a letter from your employer confirming your length of service). If you're self-employed, expect to provide your tax returns for the last few years, your Chamber of Commerce extract, and proof of professional registration if applicable.
How much of your income can the payment take up?
There's one number that matters more than any other: the payment-to-income ratio. By law, the monthly instalment can't exceed 30% of net income. That's not an arbitrary rule — it's there to protect you.
Here's the first piece of advice: never use up the full percentage the bank offers you. If the bank says "you can afford an instalment of €1,000", it's wiser to aim for €700-800 at most. Why? If tomorrow you need to buy a car or take out another loan, without any spare room you'll be stuck: the banking system looks at the total of all your instalments, and if the mortgage already fills all the available space, there's no capacity left. It always pays to leave yourself room to manoeuvre.
If you're under 36, you can access the First Home Guarantee Fund (Fondo di Garanzia Prima Casa), which offers a state guarantee of up to 80% for mortgages covering more than 80% of the property's value. The requirement is an ISEE (means-tested income indicator) not exceeding €40,000. The scheme has been extended until 31 December 2027 — real help, especially if you don't have a large deposit.
Which insurance policies are genuinely mandatory?
When it comes to a mortgage, there's only one truly mandatory insurance policy: fire and explosion cover. The bank requires it to protect the asset that secures the loan — your home. It costs on average between €70 and €80 a year and covers structural damage from fires, explosions and lightning strikes.
A second piece of advice: you're not obliged to take it out with the bank. In fact, it often makes more sense to arrange a full, separate home insurance policy that covers the property comprehensively. You can link it to the mortgage at completion, but you're free to choose who provides it. For many people, that home is the biggest investment of their life — it's worth protecting properly.
Then there are other, optional policies that can make sense:
- Term life insurance (death cover): if there are dependants who need to keep living in that home — a partner, children — this policy ensures that, should the policyholder pass away prematurely, the outstanding mortgage balance gets paid off. It's usually structured with a decreasing sum insured, meaning the premium falls over time in line with the mortgage's amortisation (though a level-cover version also exists). It costs less than most people expect and brings enormous peace of mind; it's also tax-deductible at 19% up to a maximum of €530 a year.
- Accident/permanent disability insurance: covers you in the event of an accident or illness that leads to permanent total disability above 60%. If your job is physically demanding or risky, it's worth considering.
- Involuntary redundancy insurance: covers mortgage instalments for 6-12 months if you lose your job through involuntary redundancy. It's mainly designed for permanent employees, and typically doesn't cover voluntary resignation or disciplinary dismissal — it's worth checking whether your sector is stable or prone to cyclical downturns before taking it out.
Paperwork, percentages, policies. It's not the most exciting part of buying a home, but it's the part that makes the difference between feeling protected and living with anxiety every month-end. The truth is that the bank isn't your enemy, but it isn't your best friend either — it's a commercial partner. And as in any commercial relationship, the more prepared you are, the more negotiating power you have. Know your numbers, leave yourself room to manoeuvre, and protect what you build: those are the three things that really matter.
In the next episode we'll cover one of the most important choices: fixed or variable rate? And we'll explain why there's always a right answer for each person — but it's never the same for everyone.
Glossary
- ISEE (Equivalent Financial Situation Indicator): the document certifying a household's economic situation, calculated on the income and assets of the family unit. It's needed to access benefits and schemes like the First Home Guarantee Fund. It can be requested through a CAF tax-assistance centre or online via the INPS website. Example: with an ISEE below €40,000, you can obtain a state guarantee of up to 80% on the mortgage.
- Term life insurance (death cover): a life insurance policy that covers the outstanding mortgage balance if the policyholder passes away. A decreasing sum insured means the premium falls over time, tracking the mortgage's amortisation schedule. Example: if the policyholder passes away when €150,000 is still owed, the insurer settles that debt and the family keeps the home without having to keep paying instalments.
