Obtaining a mortgage in Spain
as an American investor? A guide in 8 steps
Obtaining a mortgage in Spain is a multi-step process that involves various stages of application and approval
- Assessment of Buyer’s Eligibility in Spain
Before diving into the property market, it is crucial for buyers to assess their eligibility for a mortgage. This involves a preliminary check of ¬financial health, including income levels, existing debt, and credit history. Lenders use this information to determine the risk associated with lending and to estimate an appropriate loan amount. - Pre-Approval for Mortgage
A mortgage pre-approval gives buyers an estimate of the amount they can borrow based on a preliminary assessment of their ¬financial status. This is not a guarantee of a loan but serves as a valuable tool when house hunting, as it provides a clear budget framework and demonstrates to sellers that the buyer is a serious contender. - Property Search and Selection
When making your decision, don’t forget to take into account the long-term implications of the purchase, such as location desirability, property condition, and potential for appreciation. /li>
- Application Submission
Once a property is selected, the buyer can move forward with a formal mortgage application. This stage requires submitting a comprehensive dossier of supporting documents, which typically includes proof of income, tax declarations, employment history, and detailed information about the property. - Property Valuation
Before approving a loan, the lender will order an appraisal to verify the property’s worth in relation to the proposed loan amount. A thorough valuation guarantees that the buyer isn’t borrowing more than warranted and assures that the lender’s investment is sound. Apart from the standard valuation procedure, clients are permitted to request their own external valuations from licensed and Bank of Spain registered valuation companies. Since 2019 Bank of Spain regulations allow this, providing clients with more options and potentially better valuation results. This also means that clients are not solely dependent on bank valuations, which often arrive late in the buying process and return lower prices.
- Application Submission
- Final Approval from the Bank
Once a satisfactory valuation has been conducted, the mortgage application undergoes underwriting, where it’s thoroughly examined to ensure that all lending requirements are fulfilled. If the bank approves the mortgage, the buyer will receive a formal offer summarizing the loan’s terms and conditions. - Signing of Agreements and Completion
The last step is the signing of the mortgage and property deeds, a process typically conducted in the presence of a notary. The buyer, seller, and bank representatives will meet to finalize the sale, at which point the buyer becomes the official owner of the property. - Post-Approval Considerations Congrats!
You’ve reached the end. The last and crucial step in purchasing a property is signing the mortgage and property deeds. This process is usually done in the presence of a notary public. The buyer, seller, and bank representatives come together to conclude the sale. Once all parties sign the necessary documents, the buyer becomes the official owner of the property
Types of mortgages available in Spain
- Fixed-rate mortgages: These are the most common in Spain, offering repayment terms up to 30 years, with 20-25 years being typical.
- Variable-rate and mixed rate mortgages: Variable rates are tied to the Euribor rates plus a margin, offering less predictability potentially lower rates in the long term should rates begin to fall. Mixed rates offer an initial fixed rate period to provide some short term certainty, usually between 2-5 years at which point the mortgage converts to variable.
- Interest-only and Buy-to Let mortgages are not available in Spain
Foreign buyers can generally borrow up to 70% of a property’s value, though this depends your income and overall debt. Your total monthly liabilities, including the mortgage, should not exceed 40% of your gross monthly household income. Spanish banks require borrowers to have a deposit of 30% of the property’s purchase price plus funds to cover the purchase taxes and costs (typically between 10-13%).
Application process
- Determine affordability: Start by understanding how much you can afford and consider getting a non-binding ‘Approval in Principle’ from a mortgage broker to understand your borrowing capacity.
- Gather required documents: This includes passport copies, proof of income, bank statements, and potentially additional documents if you’re self-employed or planning construction/ renovations.
- Select a mortgage: Due to the mortgage law in Spain, it is much easier to use a mortgage broker to find the most suitable lender and the best conditions. If you provide your documents in a fast and organised manner, you can expect the process to typically take around 8 weeks.
Additional considerations
- Additional products: Banks often require you to take out additional products in order to achieve the best mortgage terms. A mortgage broker can help you to determine the true cost of the mortgage
- Notary and origination fees: Be prepared for additional taxes and costs, potentially adding 10-13% to the overall cost of purchasing a property.
- Specialist brokers: Its best to work with a mortgage broker who specializes in assisting foreign buyers. They can help you to navigate the complexities of the Spanish mortgage process, including language, regulatory and cultural barriers, to find the best deal for you.
IMPORTANT NOTICE: YOUR PROPERTY IS AT RISK IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS OR ANY OTHER LOAN SECURED AGAINST IT
Buying an overseas property to enhance personal lifestyle, or for investment, is exciting. It also provides great opportunities. But buying a property in another country, that may have a language and real estate culture all of its own, needs specialist knowledge and experience to achieve the best result.
This is especially so when it comes to financing a purchase across international borders, when even those able to buy outright with cash often prefer alternative funding.
To answer the special financial needs of international real estate buyers, Realities Abroad has joined with Simon Conn, one of the most knowledgeable and consistently successful practitioners in this specialist area, to create a one-stop international buying solution. Simon has over 40 years’ broking experience in the overseas property market. Today he is regarded as one of the leading experts in this field and is regularly asked by the media to commentate on matters relating to the purchase, or refinancing, of overseas property.
Over four decades Simon has developed exceptional connections within the overseas property and finance industry, resulting in a worldwide network of leading specialists to assist with issues such as mortgages, law, tax, survey, insurance, translation and currency exchange. He has particularly strong links throughout Europe and the USA.
*As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. Simon Conn is an Introducer Appointed Representative of Seico Insurance & Mortgages Ltd Limited which is authorized and regulated by the Financial Conduct Authority under number 300024 in respect of UK mortgage, insurance and consumer credit related activities only. If a mortgage is denominated in a currency other than your home currency, there is a risk that changes in the exchange rate may increase the equivalent value of the debt in terms of your home currency.
We will provide you with a free initial consultation and we will always explain exactly what you will be charged before you choose to proceed with an application. As we offer a bespoke service our charges can vary and the actual amount payable will be shown on any eventual quote and will depend on the country where you require finance, who arranges the finance for you, plus your personal circumstances and loan requirements. It is important that you seek independent legal and taxation advice on any property that you are going to purchase.
For more details click on the logo below:
