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mortgages in spain for non residents

Mortgage in Spain (a guide)

Introduction

Getting a mortgage in Spain for your next property purchase can be a long and sometimes complicated process.

In this post we’d like to explore how you can obtain a mortgage in Spain, conditions Spanish banks will offer to residents and non-residents, all necessary documentation, the steps to follow and pitfalls to avoid.

Let’s dive right in

"Spanish banks will offer different conditions to residents and non-residents"

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Getting a mortgage in Spain, step by step

Shop around:

Meet with several different banks and a mortgage broker before you even start to search for your property. After the meetings, you should have a realistic view of which LTV (Loan to value, or which percentage the bank will loan you on the value of the property), interest rate, and mortgage length you’ll be able to get.

Decide on the lender: 

After having done your research it’s time to decide on the bank that offers the best conditions. Be careful, Spanish banks love to “lower” their interest rate if you get some of their bank products along with the mortgage. This means they might deduct some percentiles from the interest rate, if you hire their home insurance, life insurance, get their credit cards, etc. At this stage it is important to do the math and calculate if getting those products is actually worth it. It isn’t rare to find the case when the bank product is more expensive than what it saves.

Property valuation:

Once you’ve found the property you want to purchase, notify the bank of your choice and they’ll send over a valuator. With the property valuation, the bank makes sure that the property is actually worth the market price. This is an important step since the loan will be based on the lower of the two values (valuation vs market price).

Example: You negotiate a 60% LTV with your bank. Then you find a property for 600k. Naturally you assume that at 60% you should get 360k from the bank.

But when the valuation comes in, they only value the property at 500k. This means you’ll get only 300k from the bank, having to come up with the difference yourself.

The FEIN document:

Once the valuation is done, and your mortgage has been approved by the risk analysis department of the bank you’ll receive the FEIN document (Ficha Europea de Información Normalizada). This is a personalised document issued by the bank in which you’ll find all the specifications and negotiated conditions of that specific mortgage. Read this document carefully or have it reviewed by a specialised lawyer.

First notarial meeting:

Shortly before signing the property deed of  your future home, you’re required to meet with the notary of your choice to go over the mortgage conditions. He will explain these conditions to you, and make sure that you understand fully. This law was introduced after the real estate crash of 2008. Before, many banks had abusive clauses written in their mortgage deeds, and consumers signed without knowing any better.

Property deed & mortgage deed at the notary:

Finally, the big day has arrived. You’ll meet at the notary with the selling party of the property, and a representative of the bank that’s granting you the mortgage. During this day you’ll sign the property deed of the home you are purchasing and the mortgage deed.

Post of interest: How to buy an apartment in Barcelona (a 10-step guide)

"the loan will be based on the lower of the two values (valuation vs market price)"
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Mortgage conditions for Spanish residents

When you’re applying for a mortgage in Spain, banks are laser-focused on one thing: risk.

They’re weighing the chances of you not being able to pay back what you borrow. Your country of origin, and where you pay taxes can have a huge impact on how risky they see you as a borrower. See, for Spanish banks, it’s much simpler to chase down someone who lives in Spain and pays taxes there if they can’t keep up with their mortgage payments. So, naturally, Spanish residents usually get better mortgage deals compared to non-residents.

Spanish fiscal residents:

LTV (Loan to value)

When paying taxes to the Spanish government the banks will normally offer you up to 80% LTV. This means you can get up to 80% of the property value established during the professional appraisal.

For some exceptions, it is possible to get a 90% or even a 100% LTV. But this applies to very few properties, normally the ones that are owned by the bank offering the mortgage. Also in these cases profile of the borrower has to be exceptional.

Interest rate:

Interest rates in Spain for mortgages are determined by a combination of the Euribor rate and an extra rate set by the bank.

The Euribor, which stands for Euro Interbank Offered Rate, reflects the interest at which European banks lend money to one another in Euros. This sets the baseline for the actual cost of borrowing money. As of February 2024, the Euribor rate stands at 3.5%.

On top of this, Spanish banks tack on an additional percentage, usually between 1% to 2%. This extra percentage represents the markup for the services provided by the bank. The specific amount added depends on the type of mortgage you’re applying for and the particular bank you’re working with.

Loan length

The Bank of Spain establishes the maximum recommended length of a mortgage loan at 30 years. 

The average length of mortgages within Spain in 2024 is around 23 years.

The specific conditions for your mortgage will depend on your income, how much previous debt you already have, and the bank that is issuing your loan. 

"As a resident, banks will normally offer you up to 80% LTV"

Mortgage conditions for non-residents

As stated before, to Spanish banks it’s all about how much risk there is on you defaulting on your loan. Huge factors in establishing that risk are your country of origin and your fiscal residence.

Moreover, when people buy a home in Spain from overseas, this is normally a second home. So banks rightfully consider these types of investments at a higher risk of default. If the buyer should run into financial difficulties further down the line, the first thing they’d cancel would be the mortgage of their second home. So banks offer different conditions to non-residents. 

LTV

To non-residents, banks will offer a LTV (loan to value) of maximum 70%. Although it’s much more common to get 60% or even 50%.

Interest rate:

While it is possible to find the same interest rates that are offered to Spanish residents, as a non-resident you’ll normally have to pay a slightly higher interest rate.

Loan length

Normally banks will offer a maximum loan length of 20 years to non-residents. Just some entities might offer up to 30 years depending on your personal profile.

 Payments:

In the vast majority of mortgages issued to foreigners, the payments will have to be made in euros. That being said, you can ask for the bank to transfer the mortgage to your local currency once it’s approved (this is regulated by the Spanish mortgage law)

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Types of mortgages

When it comes to Spanish mortgages the main defining factor is which kind of interest payment applies to yours:
 
  • The variable rate mortgage:

This is by far the most common mortgage in Spain. The interest rate of a Spanish mortgage is composed by the current Euribor value (Euro InterBank Offered Rate)  plus the added interest that each bank decides upon.

In a variable rate mortgage, as the name suggests the payment will vary in accordance with the fluctuations of the Euribor value

  • The fixed-rate mortgage:

In a fixed-rate mortgage, your interest rate is set when you take out the loan and it stays fixed for the entire duration, regardless of any changes in the Euribor rate.

These mortgages typically come with higher interest rates compared to variable ones, as banks want to cover the risk of keeping the rate constant throughout the loan term.

  • Mixed rate mortgage:

With this type of mortgage, you get a combination of both interest rates. You’ll start with a time period at a fixed rate (normally the first 10 years), and eventually switch over to a variable rate once that time period expires.

"Variable rate: Your payment will vary in accordance with the fluctuations of the Euribor value"
mortgages in spain (a guide) 1

Documentation needed in order to apply to a Spanish Mortgage

When applying for a Spanish mortgage, banks will request several documents, with the specific requirements varying between institutions.

The primary purpose of collecting these documents is to assess your ability to meet monthly payments and evaluate the risk of defaulting on the loan.

Here’s what you’ll typically need:

  1. Personal identification: Spanish citizens will need to provide their DNI, while foreigners must submit their passport. Additionally, foreigners require a NIE (Foreigners Spanish tax identification number) to finalize the home purchase.
  2. Credit report: As a non-resident, you’ll be required to source this report at your country of origin. When applying as a resident the Spanish banks will do this in your name.
  3. Employment details and income verification: You’ll need to furnish a valid employment contract and your latest payslips (usually at least three) to demonstrate your current income.
  4. Tax returns: Banks typically request your previous two years’ tax returns, sometimes even three years’ worth.
  5. Bank statements: Expect to provide recent bank statements to show financial stability, including your ability to cover the property deposit.
  6. Fiscal residence certificate: Obtain this certificate from the tax collection agency in your home country.
  7. Details of other debts: You’ll need to provide documentation for any other debt you might be liable for. Such as other mortgages, personal loans, alimony, etc.
  8. Details of assets: Providing details of any other properties / stocks /  pensions you might own is not obligatory, but will add weight to your application.

If any of your documents are in a language other than Spanish, you’ll need to have them translated by a sworn translator. Note that while some banks may accept documents in English, this isn’t universally applicable.

mortgages in spain (a guide) 3

The costs involved in Spanish Mortgages

When hiring a mortgage there are certain associated fees. Who pays these fees? The bank or your? Find out below:

Valuation fee – the bank pays: According to the law the valuation of the property to be purchased should be covered by the bank. That being said many mainstream lenders still charge this to the client. Also please note that you can always hire an outside appraiser if you don’t want to use the one the bank proposes.

Notary fees – normally the bank pays: Pretty much in all cases the lender covers 100% of the notary fees necessary for the mortgage title deeds. By law however, only 50% of these costs have to be covered by the bank.

Paperwork – the bank pays: All paperwork associated with the opening of the mortgage or its registration should be covered by the bank.

Stamp duty  – the bank pays: The stamp duty which in Spain is called “Actos jurídicos documentados (AJD)” will be covered by the lender. The cost can range between 0,5% – 1,5% depending on where in Spain you’re getting the mortgage.

Mortgage opening fee – buyer or bank pays: Depending on the lender they could charge this fee to the customer. This is not always the case but many banks charge around 1% to the buyer.

Mortgage broker fee – buyer pays: The mortgage broker fees vary quite a bit. They usually are composed of an initial consultation fee + a fixed percentage of the total mortgage amount.

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