How to get a Spanish mortgage as a foreign buyer
This article explains how to get a Spanish mortgage as a foreigner and explains what you can expect in terms of principal and interest rates. You will also learn about important changes that took place in late 2018 and why now is an excellent time to obtain a Spanish mortgage.
Where should I start to get a Spanish mortgage?
First, ask the leading Spanish banks about mortgages for non-residents.
Next, we recommend speaking with a Spanish mortgage broker. Many people shy away from mortgage brokers because they don’t want to pay the additional fees. However, keep in mind that they have relationships with a myriad of Spanish lenders. This is important because the best options are often not the obvious ones. Moreover, many brokers specialize in working with foreigners. Thus they are often able to increase your chances of getting a Spanish mortage. Brokers usually obtain favorable rates which can offest their fees.
Do the necessary administrative work
Obtain a Spanish NIE
A Spanish NIE (essentially a taxpayer ID number) is required to obtain a Spanish mortgage. If you don’t have one, we recommend applying for one right away as it can take a few days. For the most up to date information on how to obtain a Spanish NIE, read, “How to get your Spanish NIE in 5 easy steps.”
Check your credit rating
If you are going through a mortgage broker, check your credit history and make sure you have a rating better than “fair.” If your credit rating is not the best, take steps to improve it. Most people don’t realize how important it is to be proactive where their credit rating is concerned, and how much being assertive and good with paperwork can improve their rating.
Assemble paperwork that demonstrates your ability to pay your Spanish mortgage
It is important for the bank or mortgage broker to know your finacial strength. We recommend providing as much information as possible to prove that you can, and will, pay back your loan. You need to assemble paperwork to demonstrate the following:
- Identity- Locate your passport and make copies.
- Proof of income- You need to demonstrate how much you earn. This includes income from your job plus any dividend and interest income that accrues from your financial assets. Adequate proof of earnings include tax declarations from the country in which you pay taxes and pay stubs. You should also include bank statements demonstrating interest and dividend income.
- Assets- Provide evidence of other properties you own, additional bank accounts in your name and any financial assets you own. Adequate proof includes property deeds, bank statements and statements from your investment advisor or asset manager.
Any other financial information that demonstrates you are a financially sound candidate is helpful. This includes profit and loss statements if you own a business, bank guarantees, etc.
If you are unsure of what documents the bank will accept, please schedule an appointment with us and we will answer any questions you may have.
Find a good lawyer
Hiring a lawyer, like using a mortgage broker, often seems like an added expense but it will save you a lot of money in the long run. Before you lock-in a mortgage, you need to make sure that the property is debt free, is actually owned by the person representing themselves as the owner, and other contingencies. To learn the other reasons you need a lawyer for your property purchase, we refer you to, “The best lawyer for your Madrid property purchase.”
Educate yourself about Spanish mortgages
Below is information about mortgage rates and fees as of January, 2019. We will continue to update this article to keep it abreast of legal changes to Spanish mortgage fees. For monthly information about Spanish mortgage rates, we refer you to our partner’s site Monthly Update: Spanish mortgage rates.
What is a good mortgage rate for a non-resident?
As of January 2019, Spanish mortgage rates were at an all time low! The best non-resident mortgage rates available are:
- Variable rate: the absolute best you’ll get is Euribor + 1.5%. Euribor is the Central Bank of Europe’s rate. As of January 7, 2019, the twelve month Euribor rate is -0.119%. Click here for current Euribor rates– they change daily. The standard offering for non-residents is Euribor + 2%.
- Fixed rate: 2.5 -3.5%.
To get these top rates, you need to demonstrate two things:
- A high quality profile. Obviously, banks look for high income and low risk.
- A commitment to the bank. Contract other products to the bank such as home insurance (which you will need anyway) or a car loan. Make sure you send a minimum amount to your account monthly, pay your bills from that account, etc.
Remember, Spanish mortgage rates for non-residents are significantly higher than the standard resident mortgages you might see advertised because you represent more of a risk, from the bank’s point of view. This is because you are located abroad and the bank will have trouble re-couping their losses if you default.
How much will they lend me?
In general, non-residents will get a maximum of 50% of the property price financed by a bank. This means you need to put down a minimum down payment of 50%.
Mortgage brokers can often get foreign buyers that do not pay Spanish taxes up to 70% of the property price.
What are the fees associated with a Spanish mortgage?
There are a number of fees associated with obtaining a Spanish mortgage. The most important of these are:
Arrangement or Opening Fees
These are charged on every Spanish mortgage. They are not payable until the mortgage is granted and you start to draw on the funds. If you are granted a mortgage, but don’t aval yourself of it, you will not be charged this fee. Typically, arrangement fees are 1-2% of the gross loan amount. However, we here at Moving2Madrid are often able to achieve below that for our clients. The average for our clients is 1.5% and we have some with arragement fees as low as 1%.
Most Spanish lenders require that you have both life insurance (in case you die this provides funds for the loan to be repaid) and property insurance. This is a place to be careful as upselling insurance is a big profit center for banks when they originate Spanish mortgages. If you already have life insurance from a third party, a copy of the policy should prove sufficient. Typically, home insurance amounts to about 0.15% of the property value and is best paid annually.
Before entering into a Spanish mortgage agreement, the property must be valued by a third party. This used to be a side business for lenders, as they would often take a cut of the valuation fee. Most banks offer very fair rates for this service. Going to the trouble of arranging your own valuation is typically not worth the effort. Valuation fees are usually around 0.1% of the value of the property.
Notary and land registration fees
Aside from the property purchase price and mortage fees, there are additional fees that must be paid in taxes, to the Notary and the Land Registry. These amount to roughly 10% of the purchase price.
To learn more specifics about Spanish mortgage fees, and to learn how to optimize them, read “How to optimize your Spanish mortgage fees.”
AJD (Actos Juridicos Documentados) or StampTax
In the past, borrowers had to pay this tax. It has been highly controversial for a number of reasons.
First, the tax payable was always more than borrowers anticipated. Technically, it was supposed to be 1-1.5% of the mortgage amount, depending upon the region in which the property was located. However, banks would base their calculation on something called the “Responsabilidad hipotecario,” which translates into “mortgage responsibility.” This was typically between 150-200% of the mortgage amount. To further complicate matters, the exact percentage varied from bank to bank. The “mortgage responsibility” was calculated by taking an average of what the mortgage would cost based upon a number of theoreticals, such as the probability that the person would fail to pay the mortgage for a period, if the bank would have to take the borrower to court, etc. Thus the AJD was invariably higher than anticipated.
Second, in a flurry of often confusing legal actions undertaken by the Spanish Supreme Court in 2018, the law was changed. On November 12, 2018, payment of the AJD was passed from borrowers to lenders. This is obviosly very good news for borrowers, although many fear that banks will try to recoup their losses by increasing other loan costs.
It seems like a good time to get a Spanish mortgage
With rates at an all time low, and lenders now responsible for the AJD, now is an excellent time for foreigners to get a Spanish mortgage. To get an up-to-date list of the best Spanish banks and mortgage brokers with which to work, contact us today at firstname.lastname@example.org. We also give you contacts that speak English. This is important because most banks don’t answer emails. We did a test and sent ten emails in English, inquiring about non-resident mortgages. 80% of them did not receive a response. Morever, many bank branches don’t even know how non-resident mortgages work. But don’t worry- we’re here to help!