This Spanish mortgage guide has been created to outline how a potential applicant(s) should approach their mortgage journey. The timelines and steps are laid out based on our experience here at Foxes, and we hope this will help people through the purchase process.
Whether you use a qualified and regulated broker like us, or choose to approach Spanish banks independently, this should help you understand the process and what to expect.
Let’s start with the timing side of things:
1 – Timing and Criteria
This is not the UK, USA or Switzerland. Spain is a fantastic place to live, reside and visit, but like many Mediterranean countries the pace of many things – including paperwork – is slower. Be aware and manage your expectations. An agreement in principle can be delivered in a decent time frame (a week is usual) however a full set of paperwork will be required and possibly more documents may be asked for throughout the process. This is true of all lenders and one of the main reasons people use a broker to manage the case for them.
When to apply
Following the right sequence of steps helps to make it a seamless and straightforward experience. Preparing the required information in advance facilitates this and avoids any issues further down the line. View our timeline of steps for obtaining a Spanish mortgage.
It is not advisable to start the mortgage process after locating a property. Start early and be prepared prior to travel (if you are based overseas). By securing an AIP (Agreement In Principle) in advance you’ll know upper lending limits and the terms of the loan in good time. Use our Spanish Mortgage Calculator to work out your costs
It is important to plan/coordinate a mortgage application so it coincides conveniently with the property purchase and does not slow the process down. An AIP usually is valid for 6 months, though the lender may request updated payslips and bank statements as time passes.
How does the bank ascertain if I qualify?
Each bank has slightly different procedures and lending criteria, but those listed below universally apply to the qualifying of non-residents:
- The LTV (Loan to Value) ratio for non-residents is maximum 70% of the purchase price or the valuation – whatever is the lower amount. If your property values more than the agreed price, you’ll only get the LTV on the purchase price – the banks will never lend more.
- Purchasing costs – mostly taxes and legal/notary fees – are added to the buying price of the property. They usually range between 8%-12% depending on the federal region of Spain and the amount of the transaction, as in many of Spain’s regions there is a sliding scale for higher purchasing prices.
- The deposit and taxes must come from liquid means – i.e. from savings, the proceeds of the sale of a house or an inheritance. It cannot be from any form of loan, and this includes equity release on a property or any form of borrowing.
- Proof of income, in the form of payslips and tax returns, is vital. No untaxed income or funds from tax havens can be considered due to AML (Anti Money Laundering) regulations. Usually, two years tax returns are required and three months of payslips.
- Your DTI (Debt to Income) ratio must be below 40% of net income, where the debt described includes both existing loans and the new one in Spain. In some cases, it is lower depending on the currency you earn in.
- Use this tool to calculate your DTI – if after adding your information it turns green you are 30%, yellow at 40%, and red means the debt ratio is too high.
- In addition to income, banks also take the length of the loan into consideration, which is based on applicants age brackets. The standard rule is a maximum 30 year loan period and maximum age of up to 75. In other words, at age 50 a mortgage would last a maximum of 25 years, but if the borrower is 30 years old the mortgage will run until they are 60.
2 – The next steps
Once the financing is in place and you receive the API you are in an ideal position to move forward with the property search and start viewing houses. Be aware that the AIP is based on your financial situation – the ability for you to repay the loan. Properties can have licensing problems, debts, or issues with how they are registered. They can be rustic (lower LTV of 50%) or have had extensions that have not been updated in the land registry. You have the AIP, and the property search can commence but make sure you get a good lawyer.
Usually, people use estate agents to find properties. Once you’ve seen the property you wish to purchase a deposit will be requested. Before any money changes hands make sure you are protected. The reservation agreement should take into account:
The legal status of the property
The lawyer you appoint will confirm that the property is exactly as described by the vendor/agent and that there are no outstanding debts against it.
The valuation of the property
The bank will appoint an independent and BoE (Bank of Spain) approved valuation company to officially value the property, confirming also its m2 area and condition/state. The resulting report is sent to the bank’s risk department, which then prepares a binding offer.
A month is usually long enough to ensure all checks and valuations can take place. If the legal checks and valuation are satisfactory then you can proceed to paying 10%.
The private purchase contract or ‘arras’ contract once signed means you are committed to buying the property. Be sure before paying that the above steps have been taken otherwise the 10% will be in jeopardy. In contrast, if the seller pulls out, they have to pay back 10% plus an additional 10%. An agreed date of completion will be contained in the contract and the bank will be notified to create their binding paperwork.
3 – Binding Paperwork
There will be contracts and data protection documents drawn up by the bank. The FEIN (Ficha Europea de Información Normalizada) will describe the terms of the mortgage as laid out in the AIP within a binding document, which once signed are sent to the Notary for the preparation of the Acta Privia – the document used to explain the mortgage process and terms, and ensure the buyer understands them in full.
The buyer is given a period of reflection – usually 10 days, but up to 14 days in some parts of Spain – before signing. Work this into your timings as the wait time is mandatory and only once it’s been observed can you sign.
On the day of the signing at the Notary, the bank will send a Gestor (the banks financial representative) to arrange the payment of the funds to the vendor. The mortgage deeds are signed, the purchase is certified, and the property registered in your name – and you receive the keys to your new home.
This is a general guide and other steps or ‘bumps in the road’ may occur, so make sure you get the support you need from financial and legal professionals.