Financing a Property Purchase
Make sure you understand the costs involved in buying a house or apartment in Spain and how to go about arranging finance…
The whole process of buying any type of property or land in Spain is strictly regulated.
There are three main options available to pay for a property:
- Buy for cash - a straightforward option, but once capital has been invested in a Spanish property it can be difficult to release equity although not impossible in some circumstances.
- Re-mortgage a main home to raise the cash - again, a straight forward option and one that doesn't involve Spanish banks. However interest rates charged by banks and building societies in other countries may be higher than interest rates in Spain.
- Finance the property with a mortgage from a Spanish bank or mortgage provider.
The Initial Costs
Whether buying for cash or with a mortgage there are some costs to be funded directly by the buyer:
- The Deposit: agreement to the purchase. On the day of signing the opción de compra (the sales agreement contract) the buyer is required to pay the deposit, usually between five and ten percent of the purchase price for older properties. For new properties under construction the payment terms are made in stage payments as the construction is completed. These terms should be negotiated through the agent or directly with the constructor. It is advisable to pay the deposit cheque to the agent who is representing the buyer, and not to the vendor. The deposit is held by the agent until completion
- Purchase Costs: For all property and land, seven percent of the purchase price is paid as a property tax that goes to the Spanish Treasury. In addition, there are notary fees and a land/property registration fee, which varies according to the purchase price of the property
- Agency fees: Normal commission is five percent, which is included in the sale price
Normally, based on their valuation on the property, Spanish banks will lend between 60 and 70 percent to non-residents and more to residents. They send a valuer to assess the value of the property; the cost of this is included in the charges made by the bank for the mortgage application, which varies according to the purchase price of the property. Banks vary in their charges and this can often be negotiated. Once the mortgage has been applied for, funds will be needed to cover the cost of bank charges.
The essential elements for qualifying for a mortgage
- Sufficient income to service your mortgage
- Compulsory life insurance to cover the terms of the mortgage
Working out a price range
If a mortgage is needed to buy a property, establish a price range and determine if enough cash funds for the deposit and legal fees are available and if income is sufficient to afford the monthly cost of the mortgage.
It is strongly advised to seek professional advice about the basic lending criteria and the various options and mortgage products available. There are several options:
- Go directly to the Spanish banks and mortgage providers. Banks and mortgage providers have their own lending criteria - how much they will lend, the term of the mortgage, what mortgage products they offer and how much they will charge for their arrangement fees
- Use the services of an established mortgage broker, who will provide advice about how much can feasibly be borrowed and the mortgage products which will best suit the circumstances. A mortgage broker may save some time and will know which lenders to approach on the buyer's behalf and will provide quotations from the most suitable lenders. Throughout the mortgage procedure the mortgage broker will liaise between buyer and lender, which can be very useful if the buyer's foreign language skills are not that good. Mortgage brokers who are registered in Spain receive their commission directly from the lender and generally do not charge a fee - but it's advisable to check, as this is not always the case.
- The Inmobilario (estate agent) may offer a mortgage service and usually will offer a service similar to that of a mortgage broker
Banks will ask for pay slips of employed applicants or one or two years accounts if the applicant is self-employed. Tax declarations from the buyer's country of tax residence will be required.