How to finance your purchase in Spain

Spanish banks and some foreign entities are willing to finance the purchase of a home in Spain, and the requirements for obtaining a mortgage are well defined. Here we explain the 7 things you should know before taking out a mortgage:

The loan amount must not exceed 60-70% of the appraised value of the home. The appraised value is provided by specialized companies authorized by the Bank of Spain. To consider a loan, your own funds need to cover at least 50% of the price of the desired home. Also bear in mind that you must be able to meet the legal costs and taxes of the purchase of the house, which are not included in the valuation.

The debt ratio may not exceed 35% of net income. That is, the sum of the instalments of the new loan plus the client’s loans in his country of origin, must not exceed 35% of his regular monthly income. (Example: If a couple earns 5,000 euros net per month, the sum of the new loan fee together with that of other loans they already have, must not exceed 1,750 euros)

The maximum term of any mortgage will be 25 years (to age 75 maximum). The most common mortgage terms are between 10 and 20 years.

Mortgage loans are classified into two types depending on their interest rate:

• Variable. The most common mortgage will be linked to the 12-month EURIBOR adding a differential that currently, and depending on the entity, will be between 1.45% and 2% and will move according to fluctuations in the EURIBOR.
• Fixed. More and more mortgages are being signed with a fixed interest rate in the vicinity of 4% – 5%, which allows the mortgage payment to be paid monthly without surprises due to changes in the interest rate.

The bank will normally charge an amount ranging from 1 to 2% of the loan amount as a set-up fee. The customer must also bear the cost of the appraisal or valuation. All other expenses and taxes must be assumed by the bank since the 2019 Mortgage Law came into force.

The fees for early repayment charges cannot exceed 0.25% during the first 3 years of the loan. For loans with fixed interest this commission rises to 2%. These commissions are applied for partial and full overpayment of the mortgage. These early repayment fees are usually negotiable, especially for partial overpayments.

In some financial cultures the assistance of a financial advisory company or professional prevails, others prefer to deal directly with the bank. Despite assuming an extra cost, financial advisors greatly facilitate the choice of the best loan, comparing the offers of various entities, and advising on the possibility of getting into debt before even talking to the banks. At Medland we have a wide list of collaborators who can help you choose your best mediator.

As a final recommendation we believe that it is important that you know your financing options and ability to get a loan in Spain before considering an inspection visit (Viewing Trip). You’ll save yourself time and money, and while you may not be able to get the amount you want, you can always talk to your local bank to consider financing in your country.