Everything You Need to Know When Applying for a Mortgage in Spain
Getting a mortgage with a Spanish bank may seem daunting, especially for a first-time property investor. There are many questions to ask. Can you successfully apply for a loan as a foreigner? How will this benefit you? What is the paperwork like?
I aim to answer these questions and more as clearly as possible. So, let's begin!
Can a Foreigner Apply for a Mortgage from a Spanish Bank?
The short answer is: of course! As a general rule, any person or company that can demonstrate the source and amount of its income can apply for a loan from a Spanish bank. On the other hand, the long answer distinguishes separate situations of Spanish tax residents and non-residents, foreigners from an EU and non-EU country, and people from and outside the Eurozone. This classification will determine the terms, amount, and type of mortgage you can apply for – and, therefore, whether the loan benefits your situation.
Tax residents are those who live in Spain for more than six months (183 days) per year, whether they have residency or not.
Resident buyers are typically offered a loan of up to 80% LTV (loan-to-value - i.e., the amount of mortgage you can get divided by the property's value before taxes). The amount can go up to 90% for first-time buyers.
Spanish residents have access to loans of up to 40 years.
Tax non-residents typically receive offers below 70% LTV; in practice, the average is 60%. Some banks finance only 50% of their planned purchase. The typical mortgage length is 15 to 20 years.
Types of Mortgages in Spain
463,600 mortgages were issued in Spain in 2022.
Deciding which type of mortgage best suits your needs requires careful consideration of your short-, medium- and long-term plans. Spanish mortgages are divided into two main types: variable and fixed (rate); these are the only two types available to non-residents (some banks offer several other forms of a mortgage).
Variable-Rate Mortgages
The benefits of variable interest rates include low-interest rates and more Spanish mortgage options. The interest rate is adjusted to the Euro Interbank Offered Rate (Euribor), which has been negative since 2015. However, be careful, as these rates can also rise and cause your monthly mortgage payments to increase.
Fixed-Rate Mortgages
This type of mortgage is less risky since your monthly payments will remain constant. You are also protected against future interest rate increases. On the other hand, you will pay more when interest rates are low.
Mixed-rate mortgages
Mortgage loans with deferred payments
Mortgages in currencies other than the euro
Spanish mortgages for seniors
Commercial real estate mortgages
Construction mortgages
Green mortgages in Spain
Rising inflation and global economic recovery have caused fixed-rate mortgages to become more popular over the past year. This trend is likely due to the real risk of further inflation increases, which would negatively affect variable interest rates.
Fixed-rate mortgages are by far the most popular option for non-residents. Fixed-rate mortgages allow lenders to offset the risk of lending to non-tax residents.
In addition to a minimum 30% down payment, you should have the funds to pay for transaction costs; banks do not finance this. These costs are between 10% and 15% of the transaction value.
Spanish Mortgage-Related Costs
Previously, all mortgage-related costs were the buyer's responsibility. In recent years, however, case law has favoured investors. So, ensure you understand which costs you must cover before signing the mortgage clause.
Valuation Fee
To approve a mortgage, the bank must appraise the property. An appraiser designated by the bank usually conducts this. Despite being the party most interested in determining the property's value, the bank may be unwilling to pay the associated fee. In any case, this additional inspection for legal defects and valuation is in your best interest.
Mortgage Fee
The fee is calculated on the loan amount; the more you borrow, the higher the mortgage origination fee. It's worth comparing the fees charged by different banks, especially if the loan is substantial. Banks usually charge between 0.5% and 2% of the loan amount.
Stamp Duty (AJD)
Charged as a percentage of the loan, and its amount depends on the region of Spain (about 1.5%).
Notary Fee
In Spain, loan agreements are signed with a notary. Alongside the deed, a loan agreement is signed with an authorized bank employee present. Buying a property with a mortgage involves an additional section in the property deed and an additional fee.
Land Registration Fee
As with notary fees, land registration fees increase with a mortgage - the loan must be registered as a charge against the property. Regarding notary and land registration fees, your bank may be open to negotiating who will bear the cost.
The cost of the company hired by the bank to pay taxes and fees associated with the loan and register the property deeds.
Insurance Policy
When getting a mortgage in Spain, you must also take out a property insurance policy covering the building and its contents. Always check the terms and conditions of insurance policies, as the insurance offered by banks is not necessarily the cheapest on the market.
Subrogation Fee
If you are buying a property in Spain that already has a mortgage, you may want to take over the loan yourself. The fees for transferring the loan from the seller to the buyer are about 0.5% of the loan value.
The Process of Applying for a Loan
As in any country, the earlier you start considering a mortgage application, the better. Start applying for a mortgage at least two months before you plan to buy. Planning ahead gives you time to find the best deal and compare terms. Note that not all banks in Spain offer foreign mortgages.
You can also use an online calculator to get a better idea of your situation -> howtobuyinspain.com/en/spanish-mortgage-calculator/
Prepare your documents in advance. You will need an NIE number (foreigner's tax number) and a Spanish bank account to get a mortgage. Setting up a Spanish bank account is not complicated; you will need it more than purchasing a property. All utilities and property maintenance fees are paid via a fixed debit from the owner's Spanish account. The bank will also draw loan instalments from this account, so be sure to have the money ready.
There is a lot of competition among mortgage lenders in Spain, so it is worth comparing terms.
Usually, after signing the reservation or preliminary contract and paying a 10% deposit, the loanee provides the selected bank with information about the property and the purchase price, copies of the concluded contracts and an extract from the property register. The bank then orders a property appraisal. When applying for finance, a set of documents must be submitted to the bank.
For an individual, this means:
A completed mortgage application (bank form).
ID card.
NIE number of the person applying for the loan.
Employment contract,
Tax return for the last two years.
Confirmation of the last three payments on the employer's form.
Statement of account for the past six months.
Information from BIK (Credit Information Bureau).
Detailed information regarding existing credit obligations.
A completed declaration of assets and liabilities held (bank form).
Apartment rental agreement (if any).
Information on the accumulated funds the client intends to use to buy the property.
For self-employed persons or business owners, it will be:
A completed mortgage application form (bank form).
ID card.
NIE number of the person applying for the loan.
Tax returns for the past two years.
Company tax returns for the past two years.
Personal account statement for the past six months.
Company account statement for the past six months.
Information from BIK.
Detailed information regarding existing credit obligations.
Completed declaration of assets and liabilities held (bank form).
Apartment rental agreement (if any).
Information on the accumulated funds the client intends to use to buy the property.
After receiving the documentation, the bank has 10 to 14 days to issue a credit decision. During this time, the bank may ask you to supply further documents (usually if it's possible to allow higher financing). The amount of finance depends on the client's income, liabilities, family situation, work situation and assets and the desired property.
Under Spanish law, mortgage debt is personal and unlimited. If you do not pay your obligations, the bank can seize all your assets worldwide, not just your property in Spain. If, for example, foreclosing on a property in Spain does not cover your mortgage debt, the bank has the right to seize your assets outside Spain.
How Do You Pay for a Property in Spain as a Foreigner?
The most convenient and commonly used way to pay is by a check issued from your own Spanish account or that of your attorney. The fee for issuing a check is usually 0.4% of the amount paid.
If you are not using a mortgage, a transfer from your account in your country of residence is also possible. Of course, you then have to take the transfer fee and exchange rate into account.
There are many aspects to consider when buying property in Spain, and at times it can seem overwhelming - especially if you are not living in Spain at the time of purchase. Contact me with any additional questions; I will gladly help you.
Edyta
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