Feel free to pick from these types of mortgage programs:
Standard. Spanish banks can freely provide their services to people of all nations. The price of the property doesn't matter.
Expat-focused. Selected banks specialize in working with foreigners. They might offer you more lucrative conditions. Or, at least, their staff will be savvier in dealing with clients from abroad. There might be dedicated programs targeted at clients of a specific origin or real estate in selected areas of the country.
Green. This might seem an exotic offer for foreigners from some states — yet it's common in Spain. Its terms are more lucrative, compared to standard programs. New properties whose energy efficiency is ⅓ higher than older counterparts qualify for it. Consumers get a chance to minimize their expenses thanks to contributing to the improvement of the national ecology.
Retiree. Spanish laws enable foreigners to buy property as elderly individuals if they're aged at least 60 and get a pension in their homeland. You'll appoint a younger family member as your guarantor. If this person will co-own your real estate, you'll be exempt from paying some part of the tax.
Commercial. We won't focus on buying shops, cafes and hotels in this article. However, we'll inform you that you can expect to receive up to one-half of the price of the establishment that you'd love to own. The representatives of the bank will ask you to share your business plan with them. It's crucial to have previous entrepreneurial experience and prove it with evidence. Your goal is to convince the bank that your venture will be sustainable.
Construction. Opt for it if you're dreaming to build something unique on a piece of land. This is the least popular type of program for two reasons. First, it features higher interest rates. Banks classify such loans as high-risk ones. They realize foreigners might fail to complete the project that was supposed to be sold or rented out. Second, to build something away from your homeland, you should be very well aware of the specifics of the local market. Plus, it's vital to have a large amount of money at your disposal. If you apply, you may expect to get up to 70% of the land and construction expenses combined. It would be hard to predict the success rate of your receiving the approval from the bank because every case is highly individual.
Foreigners have a right to apply to both local and international banking institutions that operate in Spain.
Be ready to pay ⅓ of your holiday home's value from your own pocket. When calculating the amount that it can lend you, the bank will take into account either the purchase price of the property or its evaluation. Usually, the lowest amount of the two matters. In the latter case, you might not be able to rely on the evaluator that you pick. Instead, this professional will be appointed by the bank.
No deposit offers are hardly available for expats. Your only chance to get one is to purchase a property that belongs to the bank. It's a house or apartment that a third party bought but failed to pay back the mortgage. Banking institutions strive to get rid of such properties as soon as possible.
The amount of debt that you're supposed to pay monthly typically can't exceed 40% of your overall income per the given period. Most often, it's 35%.
In most cases, you'll be required to get mortgage insurance from a local bank — even though in theory, you have a right to get in in your homeland. Some institutions would offer you life insurance as well. You might be allowed to reject this offer — but if you accept it, it might improve the conditions of your mortgage deal.
The amount of the yearly property tax will be around 1%, maybe less. It's determined by the local and not national authorities. The sum will be higher if you rent the property to make a profit. You won't have to transfer the full amount in one go.
Capital Gain Tax
The amount of the capital gain tax for residents varies depending on the cost of the property. Owners of premium houses and apartments should be ready to pay ¼ of their value. For expats, it's fixed at 19% — but an attempt to resell property might incur an extra 3% fee.
In a nutshell, investing in property in this country makes sense only if you're planning to keep using it in the long run. It's not suitable for short-term gains.
Do Spanish Banks Prefer Clients from Some Specific Countries?
The higher the level of economic development of your homeland, the better mortgage conditions you'll be likely to receive. People who live in economically stable states tend to earn more. They're better protected from financial turmoils. Institutions from their homeland collaborate with international bodies and foreign counterparts to prevent money laundering. They exchange financial information and other data that is important for the banking sector.
What If the Borrower Fails to Pay Back the Debt?
If it becomes challenging for you to pay back the debt, the ownership right for your property won't be immediately transferred to the bank. For the first 1-1,5 years, you'll face fines and higher rates. Only then, you'll risk losing what you've purchased. As soon as you start doubting your paying capacity, reach out to the bank's representatives and ask them for advice. They should draft an emergency plan for you.
When a resident fails to pay back the debt, the national bank can take their new and old property, car and other assets as collateral. If you don't owe any property in Spain except for the one that you took the mortgage for, the national bank would fail to take your assets that are located abroad. This is one of the reasons why non-residents pay higher rates.
Which Privileges Do Residents Have That Non-Residents Lack?
Banks are eager to provide larger sums to residents. Those who live in this Mediterranean country permanently and pay taxes here can expect to get up to ⅘ of the property's value. Non-residents should be happy to get 70%, while 60-65% is more common.
Mortgage interest rates in Spain tend to be more affordable for EU citizens, compared to consumers who arrive from outside the EU.
Expats can't benefit from interest-only mortgages.
Spain golden visa becomes available to those who invest at least half a million euros in one or several properties in the country. Yet this perk isn't compatible with mortgages. You might not be able to live in your new property all year round.
2.25% is the most typical percentage of the variable rate. It decreases or increases proportionally to inflation. Premium clients might get the most lucrative rates. The primary target audience of this type of program is local residents. Banks can give them up to four decades to pay back the debt.
This kind of rate gives you access to a more extensive range of programs. Probably, it will enable you to reduce expenses. If the economic situation becomes less favorable, you might end up paying much more than the sum that you initially factored in.
Foreigners normally get offers with a fixed rate. The most typical rate is 2.8%. However, 1.5% or even 1% is possible too.
Banks typically give expats less than two decades to pay back the debt. Selected institutions might add a maximum of 5 more years. 15 to 17 years is the norm.
The paramount argument in favor of this kind of rate is stability and predictability. Borrowers might need to pay more than in the case of a variable rate — but still, they will be able to plan their expenses in advance.
Such offers suggest that you should stick to a fixed rate for the first few years and then, automatically switch to the variable one. It would be rare luck to come across such a program and most likely, it won't be available to expats.
When getting a mortgage in Spain as a foreigner, be ready to provide these papers:
Mortgage statement in Spanish
Passport or NIE (copy)
Document that proves that you don't live in Spain permanently
Recent payslips from the territory where you normally live
Last year's statement from the bank that transfers the salary to you
Records of your current assets
Copies of all your existing property deeds, regardless of the geographical location
Proof of tax residence
Contract with the owner of the property that you're planning to purchase
If you ever had large debts, add to the package a minimum of three receipts that prove you've paid them back
Prenuptial agreements, if you have a spouse or are about to tie the knot
NIE is a document that all foreigners are supposed to get to run a business or invest in property in Spain.
Self-employed individuals inform the bank about their earnings in the previous couple of years. They don't have to provide a payslip.
Banking institutions become more willing to accept scanned versions of papers. Selected ones might require you to show the originals. Local institutions fail to accept papers in English or any other foreign language. Banking professionals will scrutinize the data that you provide them with to assess your paying capacity and the level of risk that dealing with you involves.
To boost your odds of approval, it would be reasonable to hire an experienced broker who specializes in working with foreigners. This professional will sift through the banks and programs for you. They will share recommendations with you on how to minimize expenses and secure the best rate.
The only two expenditure items to pay for from your own pocket are:
Arrangement fee (it comes into play when the deal is already closed)
Banks take care of all the other expenses, which is a norm for the whole EU territory. In total, expect to spend a maximum of €1500. To cut down the costs, you have a right to select the appraiser with the most competitive price.
You'll need to pay the notary, real estate broker, lawyer, sworn translator and other professionals. These expenses might reach 10% of the property's value.
Paying Back the Debt with an Alternative Currency
It would be tricky to find lenders who would work with other currencies than the euro. If you manage to do that, they will charge you an extra fee. It would be more cost-efficient to stick to EUR.
This is the right algorithm for individuals who apply for a mortgage for property in Spain:
Collect the papers.
Pick the optimal banking institution and program.
Open a bank account and deposit funds.
Find a notary to take care of the deal.
Purchase your overseas property.
Be ready to wait for 1-1.5 months to get the final agreement from the bank.
To scrutinize the programs, visit the websites of various banks and use their online calculators. Hand-pick the top variants and get in touch with them, asking for a pre-offer. There is nothing wrong with showing offers from various institutions to their competitors. Probably, the latter will compose more lucrative offers to you. Feel free to send their conditions to the bank where we got the original offer and try to negotiate.
If your visa doesn't permit you to stay in Spain as long as you need to close the deal, a smart way out would be to hire a lawyer who will represent you.