A Spanish mortgage can be an interesting financing option for both Spanish residents and foreigners planning to buy property in Spain. In this article, we will offer an overview of the main conditions of a Spanish mortgage.
Please note that credit terms vary from bank to bank and depend on your personal file. However, we try to give you an idea below of what the average terms might be, so that you have a realistic idea of any credit application.
You can usually borrow 60% to 70% of the value of the home, excluding purchase costs. The value is not necessarily the purchase price you agreed on. The bank will have the property appraised as part of your mortgage application. You can borrow based on the lower of the following two values: the appraised value or the purchase price.
An example. You buy a property at EUR 400,000. However, its estimated value is 350,000 euros. This means you can borrow a maximum of 245,000 euros. Your own contribution is then 155,000 euros + the purchase costs.
Know that for new construction, you can borrow a maximum of the balance at deed of purchase. This is the last tranche after the works are completed. So you will have to finance all advances to the promoter/builder yourself.
Besides sufficient equity, you also need to prove that you can repay the loan. Usually, the bank requires that your total monthly repayment (including repayments for other loans, such as a car loan, credit card debt, etc.) does not exceed 40% of your monthly income.
The bank will therefore examine your financial situation. They usually ask for:
- KYC form with a questionnaire on your personal situation;
- Personal income tax return or assessment for the past 3 years;
- pay slips or proof of periodic income for the past 3 months;
- An attestation of your debt status;
- An account statement for the past 6 to 12 months from your usual current account;
- proof of your other relevant income.
If your repayment exceeds 40% of income, you can ask if you can rely on a guarantor. Someone from your family or circle of friends will then guarantee your repayment. A guarantor may also be your company.
Normally, you can borrow up to a maximum of 30 years. For foreigners, we are more likely to look at 15 - 20 years.
But if you are already a bit older, the time frame gets shorter. The maximum age banks use for granting credit is around 74 years. So if you are 59 years old, for example, you can only borrow at 15. This causes you to have a higher monthly burden, which should not exceed 40% of your income.
Under Spanish law, mortgage costs are borne by the bank, except for appraisal costs. So you will not pay notary and registration fees. However, the bank will charge you all kinds of administrative costs. Still, take into account at least around 1,000 euros in costs, which is cheaper than notary fees in Belgium.
Other conditions of a Spanish mortgage
The Spanish bank will also link the loan to a number of additional financial products. For example, consider fire or home insurance or debt balance insurance.
Spanish interest rates are based on the Euribor rates (Euro Interbank Offered Rate) for Spain at the time you submit your application. Euribor rates are the interest rates at which Spanish banks themselves can borrow money from other banks.
On top of the Euribor, the Spanish bank takes a margin for your loan: the Euribor interest rate + X%. This rate depends on your risk profile (resident, non-resident, personal situation, your equity, your financial capacity, the additional products that you purchase etc).
Usually, interest rates in Spain are variable or partially variable. For example, a fixed interest rate for the first 10 years and a variable rate thereafter. Variable rates are revised each semester, based on the Euribor rates. For example, if Euribor is at 3.65% and the bank applies a margin of 2% based on your file, your rate will come to 5.65%.
Validity of credit proposal
If the bank approves your application, you will receive a credit proposal ('FEIN'). Such a credit proposal is valid for a minimum of 10 days (14 days in Catalonia), but most banks use three months. This means you have to sign the purchase and mortgage deeds within 3 months.
Did you questions about buying a property in Spain With a Spanish mortgage? Confianz can assist you with the administrative processing of a mortgage application. Feel free to contact on.