Jos Deuling,  Wednesday, 24 April 2013

 

This article is part of a series of 8 articles about buying property in Spain. The other articles in the series cover the following topics:

Buying Guide
Choosing the Right Location
Real Estate Agents
Overview of the real estate buying process
Documents needed
Costs
Overview of the Property Taxes in Spain

Spanish mortgage checklist : tips and tricks for getting a mortgage in Spain.

Check how much you can borrow. In Spain, it is common that the total of your mortgage and all other loans will not exceed 35% of your net income.

Make sure you have enough money for the down payment. The down payment is about 20% of the purchase price. Spanish banks generally provide a maximum mortgage of 80% of the selling price. In case of a , you can borrow up to 95%.

Please note the tax benefits. As a non-resident with a Spanish mortgage, you can use your mortgage to lower the net value of your home. This has a positive effect on the wealth tax and inheritance tax.

Spanish mortgage lenders look closely at your income and expenses. You have to give a full understanding of your financial status. Always take a copy of your final tax bill, your payslips and bank statements with you.

Is it possible to redeem your mortgage with the income from renting? Yes, but you must already have financed yourself between 30% and 40% of the selling price. With an interest-only mortgage, the monthly amount you have to pay is a lot lower, but there are few Spanish banks that provide an interest-only mortgage with a term longer than 10 years. You can also not deduct the mortgage interest from the rental income.

What type of mortgage should you get? An interest-only mortgage or a repayment mortgage ? Spanish banks prefer the latter. You can choose from a wide variety of repayment mortgages. Interest-only mortgages are relatively new in Spain. This is the reason that there is not much competition between banks and the interest rates for interest-only mortgages are, therefore, higher than for traditional repayment mortgages.

Consider to conduct an independent valuation of the property. Spanish banks will assess the value of the property. But this is a restricted appraisal. Normally you get a copy of the appraisal report. If you want to get the actual value of the property, you should get an independent appraisal.

What are the costs of a Spanish mortgage and what costs are associated with buying a property in Spain?

VAT: IVA (Impuesto al Valor Ananido). You pay 7% VAT on a new construction or on the purchase of an unregistered off-plan property. An unregistered off-plan property is a property that you buy from someone else before the house is officially registered. In the Canary Islands, you do not have to pay the IVA. Instead, you pay a sales tax of 5%, the so-called IGIC (Impuesto General Indirecto Canario).
In addition to the VAT, you have to pay stamp duty, the AJD (Impuesto sobre Actos Juridicos Documentados). The AJD is between 0.5% and 1%, depending on the area where your house is located. The buyer must pay VAT and stamp duty. And if you get a Spanish mortgage, you must also pay VAT and stamp duty on the mortgage amount.
Transfer tax: ITP (Impuesto sobre Transmisones Patriconiales). This tax you have to pay if you buy an existing home of a private person (a resale). The percentage is between 6% and 7% of the selling price, depending on the region where the house is located. The buyer will bear the transfer tax.
Registration costs. The house must be registered with the local land registry. This will cost you about 1% of the selling price.
Legal fees. An average Spanish lawyer, abogado, charges about 1% of the selling price. Some lawyers work on hourly rate.
Notary fees. These costs are borne by the buyer. The costs are based on the selling price, the size of the house and the number of pages and clauses in the deed of sale. You must take into account an amount of between 0.5% and 1% of the selling price. And there is also again VAT to be paid. If you get a mortgage, you have to pay notary fees and VAT on the mortgage.
Agency fees. The seller pays the estate agent fees. But if you hire an agent to find a house it will cost you between 2% and up to 15% of the sales price! The percentage is highly dependent on the type of property and the region.
Mortgage costs. Spanish banks typically charge 1% of the mortgage amount. These costs have to pay if the mortgage request is completed successfully. Banks also charge appraisal fees. These costs depend on the size of the property and the region. For a property of 250,000 euros, the appraisal will cost you about 300 euros. Appraisal costs are to be paid at the time you receive from the bank the application form for the mortgage.