Mortgages for foreigners: what I should know when buying a house in Spain
More and more foreigners are buying homes in Spain; in fact, homes bought by foreigners account for 13% of purchase transactions, according to 2018 Registry data. Plus, the Foreigners Act will soon be amended so that foreigners who buy a property for more than €160,000 will receive a residence permit; automatically; And while most of them take out the home purchase loan in their country of origin, it might actually be a good idea to take it out in Spain.
Nationality is important for banks, and the criteria and conditions vary accordingly. The process is normally easier if the buyers come from wealthy countries. The banks consider not only their economic stability and creditworthiness, but also the legal system and money laundering control requirements of their countries of origin to ensure the legality of the origin of their funds.
Another factor to take into account is that not all banks grant mortgages to non-residents, because it is more difficult to deal with possible non-payments later down the line: particularly if the borrowers are not from the EU, in fact, banks are unable to seize foreign assets, and the only collateral is the mortgaged property.
So in this case, banks will ultimately grant home loans with more restrictive conditions. Foreign buyers will also have to make a down payment just like Spanish customers (usually 20-40% of the value of the property, and an additional 10% to pay for the additional costs of the property price (agency, notary, etc.), plus:
- A very high interest rate.
- The loan granted will only cover at most 70% of the price of the property (whereas Spanish buyers can get up to 80%).
- The potential borrower cannot pay over 35% of their normal income in debt (the monthly mortgage instalment plus repayments of other debts).
- Maximum repayment terms of between 20 and 30%; providing property collateral and guarantees.
Mortgage for non-residents
These conditions are even more demanding for mortgages for non-residents (the maximum amount borrowed will be lower and the interest rate higher), and also if the mortgage loan is for a non-primary place of residence.
So, all considered, it is hardly surprising that most foreign buyers choose to take out mortgages in their home countries. Some financial institutions are changing tack, however, and are happy to offer special services for these customers, including advice and assistance for dealing with notaries and property registries.
The process works like this: first, the financial institution analyses the risks, and decides whether to grant the loan; after that, the process is the same as for Spanish customers: the bank will send the offer with all the conditions, the customer will decides whether to accept them within ten days, and if so and the bank will send the documents to the notary; the deed will be prepared and signed, and the mortgage will usually be signed that same day.
Documents needed: foreigners taking out a mortgage in Spain will need a photocopy of their passport or NIE (Foreigners' Identification Number, which is like a DNI for them), tax residence certificate, employment contract and the last three pay slips from their country of residence, tax return for the last fiscal year, statement of account from their bank with all activity for the last year, last three receipts of direct debit for outstanding debts, register of current assets (bank accounts, title deeds), and an extract from the property registry (nota simple) of the property to be purchased; plus contract of sale or earnest money contract.
Non-residents must also submit a credit risk report to prove their creditworthiness. These documents will have to be translated by a sworn translator, and the customers will cover the costs.