Looking at property for sale in Spain? Foreigners have no restrictions for buying property in Spain but it's important to be aware of any differences in the Spanish buying and mortgage processes before you embark on owning your own property in Spain. Here are the important things to consider before applying for a Spanish mortgage.
How much can you borrow in Spain?
The mortgage may be based on the bank assessor’s valuation of the property rather than the purchase price, although this depends on your Spanish mortgage product. Thus, if an assessor valued your property at EUR 125,000, you could traditionally borrow up to EUR 87,500, even if your purchase price was only EUR 100,000. However, with the current economic uncertainty, some banks are starting to lend based on the lower end of the purchase price or assessor’s valuation. It is best to check with your lending institution early regarding their specific policies.
Spanish mortgage calculators
Most Spanish mortgages are variable rates linked to the yearly Euribor (European inter-bank offered rate) plus a margin. Depending on the Spanish mortgage product you select, your marginal interest rate will be around 1.8 percent to 3 percent.
However, since negative bank rates tend to put banks in financial jeopardy, many lenders are now introducing fixed-rate mortgages. Rates for these products will vary with loan term and currently range from 2.4 percent for 15 years to 3.25 percent for 20 years.
Cost of getting a Spanish mortgage
If using a Spanish mortgage lender, you should allow up to some 15 percent of the total mortgage amount for various closing costs. Thus, if your property is valued at EUR 120,000 and you can borrow 70 percent of this amount, you will need to have a EUR 36,000 down payment plus up to EUR 11,760 available for closing. Typical closing costs include the transfer and stamp taxes, the bank’s arrangement fee and opening fee, a notary fee and registry fee, and the bank assessor’s fee.
In addition, all Spanish residential property owners are legally obligated to have home insurance to cover the value of the property. Life insurance is not mandatory but many lenders require mortgagees to take out life insurance policies minimally sufficient to pay off the outstanding mortgage balance. You may also want to consider acquiring mortgage insurance to protect against default should you experience an unexpected downturn in your income. Having an active life insurance policy and a mortgage insurance policy before applying for a mortgage may even provide access to better interest rates from your lender.
Non-residents of Spain are liable to pay Spanish income tax and a potential tax on Spanish assets. If you spend more than 183 days in Spain, however, you may be considered a 'resident for tax purposes'. This will expose you to pay 21 percent tax on capital gains (if you sell your property) and a 24.75 percent tax on investment income earned in Spain (from rent, for example). You may also be subject to pay wealth taxes on your worldwide assets. If your assets are greater than EUR 2,000,000, you can be required to pay a tax of up to 2.5 percent of your total worldwide asset value.
Before applying for a Spanish mortgage
Before applying for a Spanish mortgage, you will need a Número de Identificación de Extranjeros (NIE) which translates to 'identification number for foreigners'. This number is similar to a US Social Security number or a British National Insurance number. You cannot purchase property or execute a mortgage in Spain without an NIE.
Working with a Spanish realtor
Most real estate transactions in Spain are handled through local agents. Foreigners can also work with agents in their own country who have cooperative relationships with Spanish agents. While there are many qualified and licensed real estate agents in Spain with whom you can work, their activity is not regulated by law. Agent fees typically range between 3 and 5 % + VAT of the selling. However, fees as high as 35 percent have been reported.
You can also find expat-focused and English-speaking real estate agents in Spain, particularly in the larger cities such as Madrid and Barcelona and in summer holidays destinations along the Spanish coast.
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