How to get a mortgage as a foreigner in Spain

How to get a mortgage as a foreigner in Spain

Are you a foreigner looking to buy a property in Spain? With proper preparation and thorough research, you can take out a mortgage as a foreigner in Spain successfully. In this article, you will find relevant information about mortgages in Spain that will be very useful.

To begin your real estate hunt, find out if you can obtain a mortgage in Spain and how much financing may be available for foreigners. Regardless of your citizenship status, you can purchase property in Spain. But if you’re not a resident in the country, this may limit how much money Spanish banks are willing to loan out. According to some statistics, the British, Germans, and French are on top of the leading international property buyers’ list.

Should you buy property in Spain?

Some reports made by well-known banks in Spain state that Spain’s housing market is less prone to overvaluation than many other European nations, making it the ideal place for homebuyers. Consequently, purchasing property in countries such as The Netherlands, France, and Germany can come with a greater risk factor.

However, housing costs vary substantially depending on your location. For instance, buying a property in areas such as Madrid or Barcelona’s city center can be significantly more expensive than in less populated places.

Who can get a mortgage in Spain?

Although you don’t need to be a Spanish citizen or resident to buy property in Spain, if you wish to obtain a mortgage from the country, then you will need to obtain a NIE. The NIE, or Número de Identificación de Extranjeros, is an identification number for foreigners.

If you want a loan for your Spanish home, that means securing a mortgage from the local bank. To do this successfully, be sure to consider all relevant factors such as income and other debts. Self-employed people should also come prepared with their self-assessment tax return covering the previous one to three years of earnings before applying for the loan.

Getting a mortgage as a foreigner in Spain

Spanish mortgages are often open to all buyers, regardless of price or nationality. However, if you’re not a legal resident in Spain, then the maximum loan-to-value (LTV) for buying property will be much lower than that offered to those who do reside there; up to 80% LTV is possible for residents, but non-residents generally have an upper limit of 50–70%.

To add further, whilst mortgage interest rates for locals of Spain remain at their historically lowest levels (estimated to be around 1.5% in the third quarter of 2021), non-residents may face higher interest rates that can go as high up as 2–2.5%. The Non-resident mortgage is usually fixed and lasts a maximum period of 20 years.

Mortgage brokers are your go-to professionals when it comes to mortgage applications in Spain. They can help you find the right mortgage lender, provide advice on mortgage interest rates, and calculate mortgage payments and loan-to-value ratios.

How to get a mortgage as a foreigner in Spain

Types of Mortgages

Finding the right mortgage for your unique situation requires a mindful assessment of your current, future, and long-term goals. Here are some of the more popular types of mortgages available in Spain:

Variable interest

The most favored type of Spanish mortgage is traditionally a variable interest loan due to Euribor’s negative standings. Taking advantage of these loans brings multiple advantages, including taking hold of cheaper funds and more options when it comes to mortgages. However, there are some negatives too, since with this kind of loan, you never know how much your monthly payments will be, and they could rise at any given moment.

Fixed Rate Mortgage

Previously, the Spanish buyer wasn’t fond of fixed-rate mortgages; however, over the past few months, sentiment has changed. While you may have to pay higher costs for borrowing money when interest rates are on the low side with this option – your monthly payments throughout its entire duration remain fixed and unchanging. This security was highly sought after by many Spanish buyers during 2020 due to economic instability.

Interest only

Mortgages that only require you to pay the interest for a certain time period are not very popular in Spain, especially since the property crisis. Furthermore, these mortgages can only be secured by permanent residents. While monthly payments may be cheaper with this type of loan, it is more costly overall due to added repayment time on the principal amount borrowed.

Non-euro mortgages

If you’re looking for ways to save money on your mortgage repayments, opting for a loan in a currency that isn’t the euro may be an option worth exploring. Although not widely available from Spanish banks, these non-euro loans can significantly reduce the cost of exchange rates associated with repayment – but don’t expect it to come without its own set of challenges. Obtaining this type of loan is more difficult and tends to have higher interest rates than those issued in euros.

Top tips for getting a Spanish mortgage

When financing your property purchase with a loan, here are some helpful tips for an effortless and direct process.

Weigh the pros and cons carefully

Non-residents usually don’t qualify for Spanish mortgages that offer terms as beneficial to residents. Besides, contemplate your financial repercussions if (when) mortgage interest rates increase.

To gain more insight into the benefits and drawbacks of a mortgage in Spain, get further information on this matter by consulting mortgage brokers or Spanish mortgage lenders. Non-resident Spanish mortgage interest rates, loan repayment periods and mortgage lenders are all factors that need to be considered when shopping for a mortgage.

Organize your Spanish mortgage well in advance

When it comes to mortgages, the earlier you start your application process, the better. Planning ahead gives you plenty of time to discover incredible rates and conditions that are best suited to your needs. If you choose to wait until later on down the road instead, then odds are you won’t be able to receive as favorable a loan agreement as desired.

To ensure success in obtaining an exceptional mortgage plan for yourself, make sure that your application is submitted at least two months before buying any real estate property.

Get to know the mortgage market

Before attempting to apply for a mortgage, try researching the mortgage market in Spain and get an understanding of mortgage interest rates, loan features, mortgage lenders and brokers, as well as overall mortgage conditions. This will help you make sure that you are receiving the best possible terms on your mortgage agreement.

Ask who is responsible for the costs of the mortgage and what mortgage-related fees you will be charged. Not all of the fees associated with a Spanish mortgage are required to be paid by the buyer. However, some banks may require it. Remember to find out what costs you can expect if you choose to finance your purchase in Spain.

Use a mortgage broker

Utilizing the services of a highly-regarded, licensed mortgage broker can save you both time and money since they are knowledgeable about comparing numerous lenders for you. To ensure that your interests are well-protected, choose only brokers with an outstanding track record with the Spanish authorities.

Brokers can provide valuable information about Spanish mortgage laws and the best mortgage options available for you. Furthermore, mortgage brokers are experts in obtaining mortgages for non-residents at excellent mortgage interest rates and terms.

Prepare your paperwork in advance

In order to be approved for a mortgage in Spain, you must prepare and submit the relevant mortgage paperwork. Make sure to have the following documents on hand before submitting your mortgage application: a valid passport, proof of employment letter, tax returns form or six months’ worth of bank statements, and a mortgage valuation certificate.

Shop around

With the intense competition between mortgage lenders in Spain, it is wise to carefully assess and compare their terms and conditions. Speak to mortgage lenders, brokers, and banks before deciding.

Know the mortgage terminology

Being aware of standard mortgage terms can help you make more informed decisions when selecting a mortgage plan in Spain. Common mortgage terminology includes fixed-rate, non-resident, loan-to-value, mortgage rates, and non-EU citizens’ mortgages.

Don’t commit yourself to a bank

Actively inspect your mortgage contract for any clauses that restrict you from changing lenders or require the use of certain bank products, such as insurance policies. These types of clauses may not be in your best interest since they can potentially limit the ability to switch to a lender with more favorable terms further down the line. Ensure that you are aware of all restrictions before signing on.

How to get a mortgage as a foreigner in Spain

Some mortgage fees

Below, we will shortly describe some of the most common costs that you are likely to have during the mortgage process.

Valuation fee

Before a bank can approve your mortgage loan, they must conduct an evaluation of the property. This step is mandatory and prices vary depending on the house’s worth. Generally speaking, you should expect to invest several hundred euros to thousands for this process. Additionally, it’s important to note that banks will assign their own valuer instead of allowing customers to choose one.

Mortgage fee

When you take out a mortgage, all banks charge an establishment fee based on the loan sum. Therefore, it’s worth researching different bank fees to find one that charges significantly lower rates – especially when taking out a large mortgage. Generally speaking, these fees range from 0.5% up to 2% but typically hover around 1%.

Stamp duty

Stamp duty, or Impuesto sobre Actos Jurídicos Documentados (AJD) in Spanish, is charged on mortgage loans in Spain. The amount of AJD levied as a percentage varies across Spanish regions – for properties located in the Costa del Sol region of Andalucia, it’s around 1.5%. Ultimately, you are responsible for paying this tax.

Notary fee

When purchasing a Spanish property, the notary charges a fee for their services and title deeds. For those acquiring financing, an extra charge may be added to the deed due to its special section. This expense is negotiable — your bank may cover this cost.

Land Registry fee

Land Registry fees increase when a mortgage is involved as the loan must be registered against the property. If you are looking for ways to reduce costs associated with this fee, your bank may be willing to negotiate and cover some or all of it on your behalf.

Paperwork costs

Your bank will hire a gestoría to manage the mortgage taxes and fees, as well as register all title deeds. The cost can differ depending on the magnitude of your loan and the task at hand. Some banks work with a certain gestoría thus not giving buyers an option to choose another one. Thus, if that is the case in your situation, it should be paid by the bank itself – no exceptions.

Insurance policies

Taking out a mortgage in Spain will also require you to contract property insurance covering both the building and its contents, known as continente and contenido respectively. The lending bank often offers its own insurance coverage; while it is not mandatory to accept this offer, having their protection can be beneficial for your loan terms.

While life and mortgage insurance policies are not required when obtaining a mortgage loan in Spain, you may consider these options for added financial assurance. Before signing any of the terms and conditions associated with an insurance policy, read all clauses carefully – especially those that mandate taking out coverage through your bank only instead of seeking cheaper alternatives on the market. Ultimately, you will be responsible for covering any related costs.

A word from SpainDesk

When applying for a mortgage in Spain, you should take into account many important aspects. Not all banks offer mortgage loans to foreigners. Also, some of them only accept borrowers with high credit ratings. Choose wisely.

Additionally, remember that you must have a valid bank account in the country and meet their mortgage criteria to qualify. Mortgage interest rates and fees vary from lender to lender – so research different Spanish mortgage options before making a decision. You can also use an online mortgage calculator to help you assess mortgage products offered by different banks and compare mortgage offers for the best deal.

Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal or financial advice. We highly recommend seeking guidance from a legal or financial expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.