Mortgage for property in Spain
Are you thinking of applying for a mortgage for property in Spain or Andalusia in order to buy a house or apartment? C&D Solicitors is happy to felicitate a mortgage application on your behalf parallel to the lawyer´s legal investigation.
We usually arrange the total process through an official Power of Attorney. However, if you (or your mortgage broker) want to compare mortgage offers of Spanish banks yourself, this of course is also possible. In this case we step in from the moment that the risk department of the bank issues the binding offer (FEIN-document) in order to arrange the signing of the final Mortgage Deeds with the bank. This is done during the completion of your purchase just before signing the Purchase Deeds at the notary.
As our law firm processes many mortgage applications a year, we know the current options and financial conditions of most banks well, so we can value upfront which bank is best in your individual situation. Next to this, your lawyer/solicitor can try to negotiate the standard terms according to your specific financial situation, wishes and needs. In case the bank with the best conditions decides to not grant you the mortgage you desire, then we can still apply at another bank to enable you Spanish real estate purchase.
10 Things to know concerning a mortgage for property in Spain
In the 10 things below you´ll find all information you need to know about your future mortgage for property in Spain. Although all banks and cases are different, this will give you a general view of the mortgage process, lead time, loan coverage, the valuation of the property, interest percentages, mortgage costs and conditions, risks for your reservation fee, etc. In addition, this page gives information about Spanish mortgages in name of a company or for rural/rustic of new build properties.
1. How much money can I borrow through my mortgage loan?
Keep in mind that the risk department of the head office bases its final offer on your individual situation, the specifics of the property but also on its own internal business factors. The combination of these aspects results in, yes or no, granting you a mortgage loan and under which exact conditions.
a. Percentage of the official valuation (taxation)
The capital amount of the mortgage loan is usually a percentage based official valuation price (taxation value) from an official valuation company. This is the standard unless -in an exceptional case- the purchase price would be lower than the valuation amount. Keep in mind that in Spain the valuation price might be lower than the market price. Especially in the countryside valuations can be significantly lower (this usually doesn’t affect the price negotiation).
Foreign fiscal residents averagely get a maximum of 70 to 80% coverage and non-fiscal residents about 60-70% on a mortgage for property in Spain. However, this is when we´re speaking about urban properties here as the percentage for rural properties in the countryside of Andalusia normally is about 10% lower in both cases. So, the costs that you need to finance yourself are:
- the difference between the specific percentage of the valuation and the actual purchase price
- and the extra purchase costs including taxes (about 12%)
b. Height of your income
Besides these coverage percentages, most banks have the rule that you can only spend about 30 to 40% of your net income over the last year on housing costs and other loans in both Spain and abroad. The bank will check this by asking for the bank statements of all your accounts (mostly from the last 3 months), your last tax declaration and -depending on the country- the official debt report. This automatically means that potential future rental income is not considered or counted.
2. What is the process for getting a mortgage for property in Spain?
Depending on the bank and several other factors the process for getting a mortgage can slightly vary and also the first 3 steps can run parallelly. Nevertheless, in all cases you need to go through the following phases of this regulated and sometimes a rather bureaucratic process.
a. Fiscal NIE-number
If you are sure about your wishes for the mortgage, then we advise you to with priority apply for your fiscal NIE document. This is often the bottleneck in the time scale as the risk department of the bank won´t start your project without a copy of your NIE-document. Your lawyer can apply for your NIE at the Police on your behalf through the Power of Attorney. This notary document is also valid for your general legal representation in the buying and mortgage procedure. Usually there´s no need for a legal translation of the documentation nor for the Apostle of The Hague.
b. Economical valuation of your income
The second step is to get an economical valuation from the bank director based on your financial documentation, like yearly and monthly income, debts or loans, tax declarations, other owned properties, monthly housing costs, work contracts, etc. Your lawyer provides you with a list of needed personal documentation or -in the case of a company- all economical information through your account. A logical but recommendable tip: prepare this well to avoid unnecessary delays.
c. Official valuation
To make you a first (non-binding) offer of the capital amount you could borrow plus interest rates of your mortgage, the bank will then need the official valuation of the property from an independent valuation company. The reason for this of course is that the property will be the bank´s guarantee in case you don´t pay your mortgage anymore. Officially the bank needs to pay for the valuation, but in that case you can´t take the report to another bank for a counter offer. So, this is not a fixed rule and all banks deal with it differently.
The extended valuation report is based on a mixture of financial factors of the registration of the property and the terrain in the Land Registry, but the valuator also visits the property to see its actual state. Besides of that, similar recent purchases in the area are used as a reference for the actual market value.
Next to that sometimes valuators might put limiting conditions in the valuation report for issues like an urban report from the Town Hall or corrections in the Cadastre and Land Registry (for example a New Build Declaration). For this reason it´s best if your lawyer speaks to the valuator first to pre-detect potential problems with the valuation report.
If the client approves the non-binding offer of the bank director, then the individual documentation is sent to the risk department of the head office. This is done together with the official valuation report and NIE-document. To process the application first the general FIAE-document must be signed.
Then, if the application is approved, the risk department sends the client a binding offer which is called FEIN-document. The FEIN by law stays valid for 3 months, so this means that the Purchase and Mortgage Deeds need to be signed at the notary within this time frame. Keep in mind that, even if approved, the FEIN might offer other conditions than the first non-binding offer of the bank director. The FEIN needs to be signed as official approval by the client.
e. Signing the Acta Previa at the notary
After the FEIN-document is accepted it´s a legal obligation to wait for 10 days between the Acta Previa (Initial Deeds) and the final Mortgage Deeds as a protection of the client. Both deeds are signed at the notary, which is done by your lawyer.
f. Signing of the final Mortgage Deeds
After the signing of the Acta Previa the completion of the purchase can be planned. Herefore the Mortgage Deeds will be signed with a protocol number lower than that of the Purchase Deeds. Finally, the Mortgage Deeds will be registered in the Land Registry together with the Purchase Deeds by the bank. Because the bank in this case handles the registration of the property, also your final balance meeting takes place at the bank.
Mortgage cancelation and early amortizations
Once you have fully completed your mortgage obligation financially, you need to sign Mortage Cancellation Deeds with the bank again at the notary to administratively delete it from the Land Registry records (Nota Simple). This can either be when the total duration time has been completed, when you have done early amortizations or when you sell your property. For the last two scenarios it´s wise to check if and how much fine or commission the bank charges at the exact moment of this early amortization.
Other needs for needed mortgage cancelation can for example be due to inheritance, divorce (End of Co-ownership or Consolidation of Ownership) or donation of your property. Also in these cases the new owner needs to pay the fine or commission for early amortizations, if applicable.
3. How long is the mortgage application process?
The length of the process depends on many factors, such as the admission of your NIE document, the official valuation, your final documentation and the amount of work at the bank. In the experience of C&D Solicitors, since the law change in 2019 you should count on at least 4 to 6 weeks from the start of the project until the issuing of the FEIN-document from the risk department and 2 weeks for the final signing of the Mortgage Deeds. Only from this moment in which you have the guarantee for your loan offer, so this binding document is important for your financial commitment to the purchase.
4. Do I lose my reservation fee if the bank doesn´t approve my mortgage loan?
The answer to this question depends on the conditions of the reservation contract and/or private purchase contract you sign with the vendor. If the seller is flexible, he might agree to sign a reservation contract ´subject to mortgage´. You could even specify a minimum amount for this mortgage loan. This means that you get your reservation fee back if your desired minimal mortgage isn´t approved by the bank.
However, be aware that many sellers aren´t willing to also sign the later Private Purchase Contract ´subject to mortgage´. So, this means that you risk losing your 10% deposit if the bank doesn´t grant you the loan after all. As we said in the paragraph before; the FEIN document easily takes up to 4 or even 6 weeks, while the average reservation contract is only valid for 2 to 4 weeks.
This leaves you with 2 options to not risk losing your reservation fee:
- Try to negotiate a reservation contract ´subject to mortgage´ for 4 to 6 weeks.
- Sign a reservation contract ´subject to mortgage´ for the normal time and try to prologue it once it expires if the seller agrees. In this case you of course have a small risk that the property comes on the market again if the seller doesn´t want to prologue.
So, what if the vendor doesn´t agree at all to a reservation contract ´subject to mortgage´ and you don´t want to risk losing your reservation fee? Then the only option is to continue with the mortgage and purchase process while the property stays on the market.
In the worst case might be reserved by another buyer, but on the other hand, the benefit of this option is that you only risk losing the money for the valuation and the hours of your lawyer. After all, his is still way less than losing the reservation fee of € 3.000 to € 5.000.
However, in case the vendor isn´t flexible to sign anything ´subject to mortgage´ your lawyer can still try to gain more time through strategic negotiation while he puts pressure on the bank for quick results.
5. What are the TAE, ´bonificaciones´ and the total costs for a mortgage for property in Spain?
Since the law change in 2019 the client for a Spanish mortgage only pays the costs below and not anymore for the notary, gestor, Land Registry or AJD tax.
- Monthly mortgage payment (interest rate and repayment)
- Potential opening commission of 0,5% – 1% of the mortgage(depending on which bank)
- Costs for the valuation of the property (depends on the rules of the bank) of between 300 and 600 euros
- Potential obliged share if the bank is a corporation
- Total payment of life insurance paid upfront (charged by specific banks)
Mortgage offers of different banks can be compared by interest rate but also through the TAE-percentage. The TAE is a calculation of all costs during the total time of your loan divided by the number of years. It however doesn´t count with the benefits of any potential ´bonificaciones´ discounts on the interest percentage that is optional per year. This for example can be life insurance, house insurance, credit cards, medical insurance, direct debits, etc.
6. What about the variable interest rate (+EURIBOR) vs. fixed rate and the duration of your Spanish loan?
The standard for a Spanish mortgage is a variable interest rate plus an annual national index percentage that is called EURIBOR (Euro Interbank Offered Rate).
As the EURIBOR currently is negative it´s counted as + 0% so loans with a variable interest rate are cheaper than fixed interest rates. This is not expected to change soon. However, as mortgage loans can run up to 25 to 30 years somewhere in the future this advantage might turn into a disadvantage and buyers that want to have a guaranteed mortgage amount per month can specifically apply for a fixed interest rate.
In general, the duration of a Spanish mortgage is 25 to 30 years until the age of 70 years. As also with other conditions, banks can look at individual cases and extend this period. The maximum age mostly is 75 years for the oldest person if you apply for a mortgage loan as a couple. Keep in mind that the longer the loan, the more interest you pay in total.
7. Can my foreign company apply for a mortgage loan in Spain?
You can always buy a property through a foreign company which also can apply for a mortgage loan if needed so you don´t need to found a new ´SL´ (Sociedad Limitada). In Spain, however, there are no direct benefits or downsides in terms of taxes for the purchase nor for taxes on profit over rental income.
Nevertheless, due to fiscal or legal benefits, some of our clients do wish to buy through a company. If so, the bank requests an extract of the National Chamber of Commerce that shows who the administrator is and this is the only person that can sign the Power of Attorney to the lawyer. Also, as to be expected, the bank will ask for all official yearly accountancy papers including balances and tax declarations. Finally, a fiscal CIF-number for a company is obliged instead of the NIE-number which is only issued for a private person.
8. Can I get a mortgage for a rural property in Andalusia and do I need a DAFO-certificate?
There are banks in Spain that don´t grant mortgages for rustic properties in Andalusia in general. The ones that do, usually finance at least 10% less than for urban properties. Certain banks require a DAFO-certificate which basically makes a normal purchase impossible. The reason for this is that the DAFO-procedure for rural properties in Andalusia always takes much longer than the 3 months and this exceeds the validity time of the binding FEIN-document.
Your lawyer can always intent to negotiate with a vendor about exact terms, but it´s imaginable that this seller isn´t prepared to wait that long either. There are also several banks that don´t require the DAFO for a mortgage.
As earlier mentioned in the information about valuations, valuators sometimes put limiting conditions in the valuation report. This is done more often if it concerns rural properties in the countryside due to their legal status. However, C&D Solicitors knows various banks that don´t require the DAFO for a mortgage on rural property.
9. Can I get a mortgage for a new build property or do I need to subrogate the mortgage of the developer?
Yes, you can always apply for a mortgage loan for a new build property, promotion or development yourself. However, as the FEIN is only valid for 3 months, you can automatically only start the process close the actual purchase, which means signing the Purchase Deeds at the notary.
Keep in mind that you won´t have an actual guarantee that a bank granting you the mortgage until this moment. Also, you´ll need to finance the first part of the new build property yourself (often up to 40%) depending on the payment plan of the promotor.
According to the conditions of the mortgage of the developer you can also try to subrogate it into your name. Keep in mind that the bank doesn´t have the obligation to subrogate you this new mortgage according to the valuation of your financial situation or other market conditions. In the best scenario you negotiate even better conditions, although technically this isn´t called subrogation anymore.
10. How can I save costs on a mortgage for property in Spain?
a. Comparing mortgage conditions
To save costs, in the first place it´s wise to compare all relevant conditions and details between various mortgages or have this done by an experienced professional like a lawyer specialized in guiding purchases in Spain or Andalusia. This means not only comparing the interest rate (variable or fixed rate) and TAE, but also the opening commission, the fine or ´commission´ for early amortization and any obligations like for contracting life insurance or the obligation to buy a share of the bank corporation.
b. Check conditions for ´bonification´ discounts like for life insurance
Next to that, check the exact conditions of the ´bonifications´ (bonificaciones) discounts which are evaluated on a yearly base. In some cases a product, for example life insurance, isn´t desired by the client, but due to the discount you in the end don´t pay extra costs for it. But be aware; some banks oblige you to contract life insurance and completely pay it upfront through your loan. If you cancel your mortgage earlier you can ask back for the remaining amount, but you do pay interest over this sum which makes it more expensive than the normal yearly payment.
c. Mortgage duration for property in Spain
Think about how many years you really need to have the mortgage. The shorter the time, the less total interest you pay. You can spend about 30 to 40% of your net income on total (Spanish and foreign) housing costs and loans.
d. Consider other ways of financing
If you already own a property in your home country without a full mortgage or with a surplus value, sometimes this bank can give you even better conditions by just raising your existing loan. Keep in mind that foreign banks don´t give mortgages over Spanish properties as the property will be the guarantee for the bank in case you don´t keep up with your monthly payments.
e. Renegotiating terms of an existing mortgage
If you are a homeowner with a Spanish mortgage then -after one year- you have the right to renegotiate your mortgage with another bank. In this case the new bank will pay the rest of the loan plus the transfer commission for early amortization (if applicable) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.
Priorly, however, his new bank will send the subrogation terms to your current bank. Unless it matches those terms within a period of fifteen calendar days, it will receive the total outstanding capital and the new bank will now ´own ´ the mortgage on your Spanish home. Most interest is paid during the initial mortgage period. If therefore over half of the repayment period has elapsed, it is very unlikely for the subrogation to be beneficial.