Buying villas in Valencia or any other Spanish coastal region seems like an impossible dream to many people due to a limited budget that cannot cover the full cost of a luxury housing unit. But getting a mortgage can be a ticket to your dream home.
You can find out who is eligible for a mortgage in a Spanish bank, how much you can get, and what you need to do below.
Who can apply for a mortgage in Spain?
You do not have to be a Spanish citizen or resident to buy local property. However, buyers will need a Número de Identificación de Extranjeros (NIE) to receive a mortgage. NIE is a taxpayer identification number for foreigners.
The key factors that define the creditworthiness of a potential home buyer are his income and financial obligations. Self-employed individuals will need to provide documents showing their earnings for the last 1-3 years.
Most Spanish banks have no limits on loan amounts or nationalities. However, it is better to apply for a mortgage while being a country’s resident. An LTV (the ratio of the requested loan amount to the property value) can be provided as confirmation of this fact. As a rule, residents can borrow up to 80% of the assessed property value, and non-residents can get up to 50-70%.
Residents also get more benefits in terms of interest rates. Despite the fact that interest rates have reached a historic low (about 1.6% in the second quarter of 2022), they can vary between 2-2.5% for non-residents.
Types of Spanish mortgages
Spanish mortgages are divided into two main types:
- Mortgage with a floating interest rate. Floating rates from Spanish banks work in the following way. The lending institution offers an initial fixed period to a customer, usually for one year, at a rate of 1.9% to 2.4%. Then comes the variable rate. Banks will use the twelve-month EURIBOR rate (currently negative) and will add a margin of 1.5% to 1.9%. This rate is reviewed every year according to the EURIBOR rate. So, if the buyer believes that the rate will hardly increase in the short term, and he intends to fully or partially repay the loan ahead of schedule, then it makes sense to choose this particular type of mortgage.
- Mortgage with a fixed interest rate. Fixed rates are set for the entire period of the loan validity. Thus, if the buyer has a mortgage for 20 years, the interest rate will not change during this entire period.
Interest rates on mortgage loans in Spain
According to the National Statistics Institute (INE), at the beginning of 2022, the average mortgage interest rate was 2.25% for floating rate mortgages and 2.8% for fixed rate mortgages. Residents have the opportunity to get a mortgage with a fixed rate of 1% to 1.5%.
How much can I take out as a mortgage loan in Spain?
In order to get a mortgage in Spain, the buyer usually has to make a minimum deposit of 30% of the real estate value. Then, the lender will fund the remaining 70%. As mentioned above, this percentage may be slightly higher for the country’s residents and lower for non-residents and people buying a country house or buy-to-invest home. The maximum debt-to-income ratio (DTI) accepted by mortgage lenders is usually around 35-40%.
The mortgage process in Spain
It has already been stated that in order to apply for a mortgage loan, the foreign buyer should obtain a tax identification number (NIE). To do this, you can submit an application to any police station in the country. People outside of Spain can apply to the Spanish consulate in their home country.
To apply for a NIE, you will need the following documents:
- Completed EX-15 form;
- A copy and the original passport;
- Two passport-size photographs;
- fee for filing the 790 tax form, €9–12.
After receiving a NIE, a real estate purchaser can apply for a mortgage loan. For this, the following documents are required:
- Documents confirming the buyer’s income;
- A preliminary sale and purchase agreement;
- Proof of the property tax payment;
- Detailed information about the current debts and credits of the buyer;
- Copies of all existing documents for the residential unit owned by the buyer (in Spain and other countries);
- Information about the buyer’s current assets;
- A marriage contract (if any).
Bank representatives handle the received documents and make a mortgage offer to a potential client with this information. If it does not suit the homebuyer, he can go to another credit institution. As a rule, competitive banks try to make better offers.
Next, the homebuyer signs the mortgage agreement at the notary’s office. If he is unable to attend in person, he may be represented by a lawyer.
Assistance with purchasing property in Spain
Regardless of the location of a selected residential unit in Spain, highly qualified Spain-Real.Estate specialists will assist the potential buyer with choosing the best option and provide support during a transaction. Go to the aggregator’s official website to learn more about the best offers in the Spanish real estate market right now.