Buying property in Spain is a dream for many, but getting a mortgage can seem complicated, especially for non-residents. In this post, I’ll explain how to start the mortgage application process, what documents you need, and the main requirements set by banks. I’ll also cover potential costs and walk you through the mortgage approval process.

Let’s get started!

Where to Start When You Want to Buy Property in Costa del Sol with a Loan?

If you are considering buying a new home or investment property with a loan in Southern Spain, the first step should be to apply for a mortgage.

Why not start by looking for the right property? You can search, but if you find the perfect one and only then go to the bank, there’s a high chance that you might miss out on it.

The real estate market in Costa del Sol is very fast-paced. If a seller has the choice between waiting for a few weeks for the bank to approve the loan or selling to someone who already has the money ready, they will usually prefer to sell immediately.

It’s important to understand whether you can get a loan and, if so, how much.

Therefore, it’s best to submit a loan application at the beginning of the process. The goal of this step is to understand how much money the bank is willing to lend you based on your financial details. Once you have the bank’s confirmation of the future loan amount, you can confidently enter price negotiations for the property.

Should you apply for a mortgage from your home bank, your home country bank, or a Spanish bank?

The first recommendation is to always apply through your home bank or a bank in your home country. The loan process is likely to be faster and easier. Spain is known for its paperwork-heavy bureaucracy, and the process here is slow (typically 1-2 months). If you are a non-resident, more documents may be required because Spanish banks do not have access to non-residents’ tax information or assets. Since lending to non-residents poses a higher risk for banks, they usually offer higher interest rates compared to those available to locals. Additionally, in Spain, much depends on the bank and the bank employee. There have been cases where one bank gives a definite ‘No,’ while another bank approves the loan.

Who can apply for a mortgage in Spain?

Spanish residents

These are individuals with permanent residency in Spain. They typically receive loans on more favorable terms and with higher loan-to-value ratios (up to 80% of the property value). In some cases, it’s possible to get a 100% mortgage if the property is repossessed by the bank.

Non-residents

These are individuals whose permanent residence is outside Spain. They can usually obtain a loan for up to 70% of the property value, but are required to submit additional documents since the bank doesn’t have access to their tax or asset information. In many cases, the loan amount for non-residents may only reach up to 50%.

Can businesses get a mortgage from a Spanish bank?

Yes, they can, but there are some exceptions.

A foreign company that is not registered in Spain cannot get a loan from a Spanish bank. This is because the bank cannot seize the company’s assets in case of default.

However, if the foreign company has a subsidiary registered in Spain, the Spanish subsidiary can apply for a loan. In this case, the parent company will act as a guarantor, and the bank will thoroughly assess the financial health of the parent company. This includes evaluating its balance sheet, income statements, payroll taxes, and cash flow statements.

A newly established Spanish subsidiary cannot obtain a loan either, as there is no track record of financial performance to assess.

An established Spanish company, however, can get a loan for expanding operations, making investments, or purchasing real estate.

What are the conditions for obtaining a mortgage from Spanish banks?

Spanish banks require the applicant to demonstrate a stable and regular income. Stability and consistency of income are key factors in their evaluation.

The loan repayment should not exceed 30–35% of the applicant’s monthly net income. In addition to income, the bank will also assess other assets such as bank accounts, savings, securities, pension funds, investments, stocks, bonds, and more. For instance, if an individual earns €3,000 per month, their total loan repayments should not exceed €1,000–€1,100 per month.

Spanish banks’ loan assessment models also consider various interest rate scenarios, including potential rate increases, to ensure that the borrower can repay the loan even if interest rates rise.

A flawless credit history is essential. Spanish banks have access to databases that provide information on a client’s loans. These databases offer insights into accumulated risks starting from €1,000. The issue is not just the debt itself but how well the applicant manages their existing debts and whether sufficient collateral is available.

What documents are required by the bank?

If an individual is applying for a loan

• NIE number
• Copy of passport or ID card
• Copy of the employment contract (sometimes requested)
• Payslips for the last 6 months
• Bank statements for the last 6–12 months
• Last year’s tax return
• Certificate of no tax debt. In certain cases, the bank may require a document confirming that there are no outstanding tax liabilities.
• If the applicant has loans or obligations with other banks, information on these, including loan payments and balances, must be provided.

Documents are usually accepted in English, but they must be clear and understandable.

If a company is applying for a loan

When a company applies for a bank loan in Spain, they must submit documents that prove their financial stability and ability to repay the loan. Here are the key documents typically required by the bank:

1. Company registration documents

• Company charter (Escritura de constitución). This document proves the legal establishment of the company and its business form (e.g., Sociedad Limitada – SL).
• Company tax identification code (CIF – Certificado de Identificación Fiscal). This is the company’s tax identification number in Spain.

2. Financial statements

• Balance sheet (Balance General). This shows the company’s financial position, including assets, liabilities, and equity.
• Income statement (Cuenta de Pérdidas y Ganancias). A document detailing the company’s income and expenses over the past fiscal year.
• Cash flow statement (Flujo de Caja). Banks may request this to see how the company manages its inflows and outflows of cash.
• Employee tax report. If the company has employees, this report shows that payroll taxes are paid on time and that the company complies with labor laws.

3. Tax returns

• Corporate tax returns for the last 1–2 years (Declaración del Impuesto sobre Sociedades). This proves the company has met its tax obligations.

4. Bank statements

• Usually, the bank will require bank statements for the past 6–12 months to prove financial stability and that there are no significant debts.

5. Property-related documents (if the loan is for financing real estate)

• Property valuation report (tasación). A mandatory report for assessing the property’s value.
• Reservation contract. If the property purchase is planned, the reservation contract serves as proof.

6. Business plan

• If the loan is intended for business expansion or an investment project, the bank may require a business plan (Plan de Negocios) outlining the loan’s purpose and future financial goals.

7. Debt and obligation proof

• If the company has existing loans or financial obligations, the bank may ask for details, including loan terms and repayment schedules.

8. Collateral documents

• The bank may require collateral from the company, such as real estate, equipment, or other assets, to support the loan agreement.

9. Auditor or accountant certification

• In some cases, the bank may require certification from an independent auditor or accountant to verify the accuracy of the company’s financial statements.

The process for a company to apply for a loan is often more complex than for an individual, as the bank assesses the company’s sustainability and financial risks more thoroughly.

Documents are generally accepted in English, but they must be clear and understandable.

What is the process for getting a mortgage to purchase property?

Step 1. Financial Profile Assessment

You submit necessary documents to the bank, such as proof of income, employment contracts, additional income sources (investment portfolios, rental income, etc.), and tax returns. The bank will check your credit history to assess your ability to repay the loan.

• The bank reviews these documents to understand your financial situation and determine loan eligibility. This step should ideally be completed before signing a reservation contract. If you have a lawyer or use a mortgage broker, your task is to provide the necessary documents, while they handle the rest.
• Result – after this step, you will receive written confirmation from the bank indicating how much you can borrow.

Step 2. Property Valuation

Once your financial profile is approved, the next step is to appraise the desired property. The bank will hire an appraiser to inspect the property and determine its market value, which will serve as collateral for the mortgage.

• Valuation process. A professional appraiser evaluates the property’s location, condition, size, and current market trends to establish its value.
• Market value. The appraisal helps the bank understand the property’s value and assess the loan risk.

This step ensures that the bank lends according to the actual value of the property.

Step 3. Approval and Binding Offer

After a positive appraisal, the bank will issue a binding offer, which includes the European Standardized Information Sheet (FEIN) and the Standardized Warning Sheet (FIAE).

• FEIN and FIAE. These documents provide an overview of the loan’s terms, interest rates, and payment conditions.
• Binding offer. The offer is legally binding, meaning the bank is obligated to lend under the specified terms.
• Confirmation. By accepting the offer, you agree to the loan conditions and proceed with the transaction.

This step ensures you understand the loan terms before proceeding further.

Step 4. Mortgage Transparency Report

Before signing the mortgage agreement, there is a mandatory 10-day reflection period (14 days in Catalonia). The transparency report is signed at the notary’s office. If you have granted power of attorney to your lawyer, they will sign on your behalf.

• Reflection period. This period allows you to carefully consider the loan terms and decide if you want to proceed with the agreement.
• Transparency report. The notarial document confirms that you fully understand the loan conditions, risks, and obligations. Introduced in June 2019 as part of the new real estate credit law (Ley 5/2019), the transparency report is meant to protect borrowers by ensuring they fully comprehend the mortgage terms.
• Questions. You have the opportunity to ask the notary or bank representative any questions you may have.
• Legal requirement. According to Spanish law, if you fail to repay the loan, both your current and future assets can be used to cover the debt.

This step ensures you are making an informed decision.

Step 5. Signing the Purchase and Mortgage Deed

After the reflection period, you will return to the notary (or your lawyer will represent you) to sign two deeds—one for the property purchase and the other for the mortgage. Typically, the property purchase and mortgage signing occur on the same day. The bank cannot release the loan until you own the property, as the property serves as collateral for the loan. Once the documents are signed, ownership of the property is officially transferred, and the loan is activated.

Step 6. Registration

After signing, both the property and the mortgage are officially registered in the land registry, which gives the bank the right to sell the property if the loan is not repaid.

This step secures the transaction and protects both parties.

What are the costs associated with obtaining a mortgage?

When taking out a mortgage in Spain, several costs are involved, and it’s essential to consider them when determining the total cost of the loan. Here are the main expenses:

• Arrangement Fee. The bank may charge a fee for setting up the loan, usually ranging from 0.5% to 1% of the loan amount. In some cases, this can be negotiated or waived.
• Property Valuation. A mandatory appraisal is required to confirm the property’s value. The borrower usually covers this cost, which typically ranges from €300 to €600, depending on the property.
• Notary Fees. These depend on the size of the loan, the region, and the complexity of the transaction. Notary fees are paid during the mortgage signing process.
• Land Registry Fees. These cover the costs of registering both the property and the mortgage in the land registry. The cost can range from €500 to €1,500, depending on the property’s price.
• Insurance Requirements. Banks usually require home insurance to protect the property against damages. Additionally, they may recommend life insurance to cover the loan in case of the borrower’s death. The cost of insurance depends on the property’s value and the loan amount.

Understanding these costs helps in better financial planning when applying for a mortgage.

What is the maximum loan term in Spain?

The maximum loan term in Spain is 30 years. However, an exception can be made for repossessed properties, where the repayment period can extend up to 40 years.

At what age can you obtain a loan in Spain?

The minimum age for applying for a loan in Spain is 18. Typically, the loan must be repaid by the time the borrower reaches 75, though this can vary depending on the bank’s specific conditions and the type of loan.

What are the current interest rates?

Interest rates in Spain depend on several factors: the state of the economy, the policies of individual banks, the borrower’s status (whether you are a resident or non-resident), and the type of loan. Residents typically receive more favorable terms compared to non-residents. Additionally, the choice between a fixed or variable interest rate also influences the final interest rate. Variable rate loans are linked to the fluctuations of the Euribor.

September 2024
For non-residents
Fixed interest rates: starting from 2.85%
Mixed interest rate (hybrid): 2.50% (fixed for 5 years), then Euribor + 0.75%
Variable interest rate: 2.50% (fixed for 1 year), then Euribor + 0.75%

For Spanish residents
Fixed rate: starting from 2.52% (with additional products, such as insurance)
Mixed interest rate (hybrid): 1.50% (fixed for 5 years), then Euribor + 0.60%
Variable rate: 1.35% (fixed for 1 year), then Euribor + 0.25%

Can you help apply for a loan from Spanish banks?

Yes, we can. Our lawyer can assist you in applying for a mortgage to purchase property. Once you’ve authorized the lawyer and sent the necessary documents, they will seek mortgage offers from various banks to help you choose the best one.

The lawyer has established contacts at different banks, which is crucial for a successful application. Each bank has unique requirements, risk preferences, and conditions (including factors such as nationality, investors, or business owners). The process can be time-consuming, but delegating this task to a lawyer will save you time and ensure a smoother process.

Got a question?
Email: eve@merlishomes.com