I. How do I get a mortgage?
If you have a good income it is relatively easy to get a mortgage. Today it is possible to get up to 70% of the value of the property with no problems.
In some cases even greater mortgages can be obtained but due to the general economic situation this is now somewhat more complicated.
The banks consider the two following aspects separately:
- personal income situation
- the valuation of the property.
The bank will approve the mortgage only if both aspects are positively evaluated.
For all this it will be necessary to provide a variety of documents, which are generally the following:
A. Income documentation
Requirements may vary from case to case. To provide guidance on the types of documents the banks may require we have prepared a list which includes those which are generally required when applying for a mortgage:
- Passport or national identification document
- National identification number of foreigners in Spain (NIE)
- Personal information or assets declaration
- Proof of any loan balances
- If necessary, other income documentation
- Certificates of registration of other property owned
- Copies of loan contracts, if any
- Credit rating report (Equifax.co.uk, Experian.co.uk, Experian.ie, icb.ie)
- Last 6 payslips
- Last tax return
- Copy of employment contract
- Copy of last P60
For self employed workers:
- Tax return for the last 2 years
- Certificate of advance tax payment
- Copy of the last VAT declaration
- Balance sheet of profit and loss statement for the last two years
- Confirmation letter from an auditor certifying that all payments are up to date and, if appropriate, that the company is up to date on all taxes payments.
- If necessary, certification of accounts and annual withdrawals for private use.
You do not need to worry about the documentation relating to the property as we will provide all this and put it at the disposal of the bank.
B. Personal Income situation
For the bank to approve the loan application, the customer's total monthly mortgage and loan charges should not exceed 40% of their net income. However, there are exceptions to the general rule but it would be too much to include in this section.
If the property is appraised and your monthly income high enough there can be no objection to a mortgage.
C. Bank valuation
The bank will ask its own expert to make an appraisal of the property, and you will have to pay a fee in advance for this. This generally is a few hundred Euros, depending on the size of the property.
The value of the property determined by the expert will be, the basis for the calculation of the maximum mortgage amount. On the hand some banks base it on whichever is the lower of the purchase price or the appraised valuation. However, these are exceptional cases and we won't discuss them further here.
Don’t worry: the appraised valuations and purchase prices are almost always different, that’s the norm!
If the valuation is higher than the amount applied for the obstacle is overcome!
D. How long does the process take
The length of time between the request for, and the approval of, a mortgage varies from bank to bank. In our experience, you need to be patient. Realistically you can expect to wait approximately 4 weeks. Of course we have had some cases where it has only taken a few days from request to approval, but these are genuine exceptions.
You should keep in mind that commitment to grant loans are of limited duration.
E. Registration day
On The day of the signing of the deeds (notarised purchase agreement) the bank representative comes to the notary and signs the mortgage document in front of the notary. In general the representative has one or various bank cheques prepared for the seller. At the same time the approved mortgage payment will be made.
If at the time of sale, the seller has an outstanding mortgage on the property, the representative of the sellers bank will also attend the appointment at the notary to redeem the seller’s mortgage. All this will take place simultaneously before the notary.
II. Types of Mortgages
In comparison with the rest of Europe mortgages in Spain are quite favourable. It is usual for there to be variable interest on mortgage loans. A certain determined interest over the bank rate is agreed. The “Euribor + x%” is often used as a formula for the type of interest. The interest will be updated to the agreed formula at regular intervals. The majority of updates are semi-annual or annual.
The maximum duration of the mortgage must be kept in mind. Every bank has a customer age limit up to which they will grant a mortgage. In most cases the age limit is 75. For example: if you are 50 years old they will grant you a 25 year mortgage. The duration of the mortgage is important to be able to calculate the monthly payment. The longer the duration of the mortgage the lower the monthly payment is.
You are reasonably free to pay off a loan at any time for a small fee. The “compensation for early repayment” is, set in most cases, at 0.5 and 1 %. This makes the mortgage reasonably flexible as you can repay whenever you are able to and want to.
III. Costs involved in a mortgage
Because a bank mortgage is always signed in front of the notary there are a series of notary costs. And logically, the mortgage must be entered into the Register of Property, which also incurs registration and processing fees.
Additionally, almost all banks have a one-off processing fee which in most cases is between 0.5 and 2 %. Mortgages are also subject to insignificant taxes which must also be paid. And as we have said before the appraiser must also be paid...
Some banks also require proof the existence of property insurance. Such insurance must be taken out anyway.
More over in some cases life insurance is taken out for the amount of the mortgage.
Broadly speaking you should around 3% expenditure just for the mortgage. However, this is only a general indication.