Financing real estate partly with the help of a mortgage
If you want to buy a property in Spain and do not have enough money or do not want to go out of your reserves, getting a loan from a banking institution can be the solution.
Before you choose what type of mortgage loan you need and what institution you request it, you should know that in Spain there are banks and savings banks, fixed and variable mortgages, interest rate mortgages where you only pay interest and not capital , flexible mortgages and fixed mortgages. Thus, depending on your debt capacity and depending on your specific needs, it will be more advantageous to choose one or the other.
The absolute majority of mortgage loans in Spain have variable interest with the EURIBOR reference indicator. This shows the average interest rate for which European financial institutions lend to each other. A differential value (increase) is added to the Euribor, normally between 1 and 4%. As a rule, installments are reviewed annually and, depending on the development of Euribor, they are either reduced or increased. Fixed-interest mortgage loans have a much higher interest rate, while their main advantage is the fact that they do not change depending on market fluctuations.
In order for a financial institution to approve a mortgage in your favor, you need to demonstrate your ability to pay monthly installments. For this, the bank will require a number of supporting documentation. In general, a bank will expect your total fixed financial expenses to not exceed 35% of your net income. In the final, however, the amount of the loan will depend on the estimate of the property price that the bank itself will make. During the real estate boom, banks usually provided an estimated value of up to 100%, but in periods of recession, as much as 50%, the share is usually lower. The maximum maturity of the loan will depend almost exclusively on the age of the applicant. However, there are banks whose strategies contain predetermined maximum limits. Normally, maturities range from 10 to 25 years.
Documents needed to apply for a mortgage in Spain
a) Related to the applicant:
- Completed application form
- Passport copy
- Kopie N.I.E.
- Confirmation of dependent income (last 3 months, for employees)
- Annual audit covering the revenues and annual accounts of the company (in the case of tradesmen)
- Tax return for the last tax period
- Bank statements for the last two months
b) Real estate related
- A copy of the acquisition title to the property
- Extract from the cadastre
- Proof of amounts already paid (in case of purchase in a development project)
Expenditure on arranging a mortgage loan in Spain
Expenses associated with arranging a mortgage loan in Spain are as follows:
Estimate
The Bank will require an estimate of the value of the property in order to verify the return on the loan. The cost of such an estimate is typically around 400 Euros
in the case of middle-class real estate and it is debited to the client.
Account opening fee
Banks charge an administrative fee for mortgage approval, a one-off fee payable before the loan agreement is signed.
Property insurance and life insurance
Property insurance against total destruction (fire) is mandatory. There is a compulsory indemnity for the benefit of the bank in order to ensure that in the event of a disaster and total destruction, the bank will recover the loan. There are cases where the bank also requires life insurance (although this is not mandatory by law) to insure potential risk events such as death or permanent disability.
Notary fee and registration
Mortgage credit contracts take the form of a public document and thus sign for notaries. This also implies the subsequent registration of the document on the relevant land registry.
Administration
As a rule, the Bank entrusts the administrative site with the matter of registering an external agency loan. It is a common agenda such as picking up a loan agreement from a notary, paying the relevant taxes, submitting it to the land registry and then picking up the document.
Property / household insurance
It is advisable to arrange property insurance to cover at least the basic common risks (fire, theft, damage to the water supply). In most cases it will be a variant of temporarily or holiday-occupied property. Even ten-year insurance, which must be legally required by a construction company, and which generally addresses possible major construction deficiencies, or the owners' community itself, does not have individual property insured inside.
Compulsory insurance is a mortgage in the case of real estate financing. However, even if you finance your property from your own resources, we recommend arranging property insurance against fundamental risks and also considering household insurance.
We will be happy to advise you on all these issues or arrange a meeting with our professional advisors.