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Applying for a Mortgage in Spain as a Foreigner

The word for mortgage is hipoteca in Spanish and that’s how I began applying for a mortgage in Spain as a foreigner. Fortunately, I found a very nice bank representative which made the process much easier.

I don’t speak Spanish, but I am learning. This morning I walked into a CaixaBank branch near me in order to apply for a mortgage. The first branch couldn’t find any records of me having a bank account. She kindly asked me to have my account transferred from Sevilla to Santiago de Compostela… or perhaps she called me an ugly donkey, hard to tell.

I decided to walk over to different CaixaBank branch in the bougy part of town. Nobody spoke English but I had memorized a few real estate terms and had my Google Translator.

“Me gustaría solicitar una hipoteca.” 

She asked me to sit down to wait for the next person available to help with me with my mortgage request. I only waited for 5 minutes until I was greeted by Eva.

She figured out that for some reason my bank account was under my passport number and not my NIE, which is why the other bank branch couldn’t find me. Eva was able to find it, though it wasn’t necessary for the purposes of applying for a mortgage.

 

Applying for a Mortgage in Spain as a Foreigner

Really, applying for a mortgage is not much different from the mortgage process in the US. The underwriter, in this case, was someone working at the bank and the only thing that stood out is that she was a little less slimy than your average underwriter.

She asked about the price of the house – €90,000. And went on to explain that the bank was willing to lend me up to 80% of this amount if I qualified. I would be responsible for the other 20% plus the sales taxes on the property.

Mortgage Terms

There is a fixed rate and a variable rate. The fixed, or fijo, was somewhere around 3.20% which can come down based on a few factors.

The variable rate was 1.20% + current base rates which happen to be 0%. So I could get a variable rate for 1.2%, not bad.

I can apply for a 5-year, 10, 15, 25, 30, and 40-year mortgage. The lower the term the lower the interest rate. With a 5-year mortgage I can get the rates even lower.

Mortgage Rate Discounts

The base rate might be 3.20% but you can bring this down with a few factors. Here is the list along with the discount rates:

  • regular monthly paycheck deposits (-0.40%)
  • life insurance (-0.20%)
  • home insurance (-0.20%)
  • alarm (-0.20%)
  • investing €25k with their bank (-0.20%)

Life insurance is mandatory. I don’t have an efficient way of depositing my “paychecks” into a foreign bank since I’m self employed. I could get it done but that’s often not necessary in order to secure a mortgage in Spain as a foreigner.

Banks here are in the business of upselling you. For example, CaixaBank is sponsored by Samsung. If you agree to finance a TV from them then they will give you a 0.20% discount on your mortgage.

If I choose to purchase a property alarm (?) from them at around €50/month then I get another 0.20%. I didn’t know how to say “I don’t want any of your upsells and want to just go with the base rate.” So I had to sit through the entire presentation and constantly go back and forth to figure out what she was talking about.

Seguro vida. Yes, what about my life? Yes, my life is safe but … Fucking Google Translate couldn’t translate this an apparently it’s life insurance. That was awkward.

Though not as awkward as me giving her my “bank card”. She laughed because even though it was issued by their bank it was my health insurance card. What she didn’t know is that 20 minutes before I was trying to force-feed the ATM outside with this card and scratching my head as to why the fucking thing wouldn’t spit out any cash.

Final Rate

My final rate probably will come out to 2.40% for a 10-year mortgage. However, she said that right before we sign the final document she will try to get me into a 5-year and that might drop the rate by as much as 50%.

The 10-year mortgage will come out to €680/month for a total financed amount of €72,000. I would be paying back a total of €81,840.

Documentation

Before the loan can be underwritten I need the following items:

  • inspection – estudio (to which I kept replying, no, it’s a 1-bedroom)
  • aportura (?)
  • notary – notaria
  • appraisal – tasación
  • registration with city – registro
  • taxes on documents – IAJD, impuestos el de actos jurídicos documentados

The way I understood her, the bank is willing to pay for all of this if I obtain a mortgage through them. I highly doubt that and most likely I misunderstood but I’ll write a follow-up if and when I close the mortgage.

I could see a situation where the bank “pays” for all that and tacks the price onto the principal which you’ll then have to pay back over the life of the mortgage. No, gracias.

Timeline

Foreigners who apply for a mortgage will have to provide all sorts of documents to confirm their assets, income, and any debt they might have. Each document has to be translated and notarized.

Usually it takes 3 weeks. It can get delayed but apparently it’s rare that it will take much longer than 5 weeks. This matters because you’ll need to provide a deposit on the potential property you want to buy and indicate a closing timeline.

 

Advantages of a Mortgage

There are a few advantages to getting a mortgage over paying cash. For one, I would have to cash out a few of my investments. I don’t like doing that because I would be selling out of the shares I already own. Even worse, my funds have all appreciated during this recent bull market which means that I would have to pay capital gains taxes on it.

Obtaining a mortgage also ensures that the property is fully vetted by the bank. If I’m overpaying or if there are issues with the property then the bank will likely uncover them.

The mortgage fees would come out to an extra €3,000. But, again, apparently the bank would pay for that. We’ll see.

I would be paying this mortgage off in about 10 months so not too worried about carrying extra debt. I can always flip a switch and pay it all in cash before finalizing the mortgage.

 

Purchase Agreement

If you see a flat which you want to buy, you have to give the seller a deposit so that it can be taken off the market. This deposit is usually around 5% and the terms should give you enough time to apply for a mortgage in Spain.

One of the flats that I’m interested in has an asking price of €95,000, I wrote about it in this recent post. She bought it back in 2007 for about the same price (fucking shitty appreciation). She has since upgraded the windows and bathroom.

After some negotiations we have agreed on a price of €90,000. There probably would have been more wiggle room but no way it would go for anything less than €85,000 because of it’s location in the Vista Alegre neighborhood. My haggling policy is 10% – I don’t waste ATP’s for anything less than that.

Esther and I agreed on a €2,000 deposit if I decide to buy it. We have drawn up a contract together and will sign it if I decide to buy it from her. I would then have 150 days to pay her the rest of the €88,000.

If I don’t come through with the rest of the money in those 150 days I would lose my deposit. If she sells the place before this timeline, I would get back €4,000 – double the amount, which is a rule here in Spanish real estate transactions.

I can PayPal her the deposit, so that’s easy. I have some more thinking to do and a couple of more units to view. And, I don’t even know if I want to buy a place in Spain. I don’t even know if I want to live in Spain. But that’s me, I make my decisions on the fly and I can’t say that it’s failed me too much so far.

 

Legal Representation

Getting into bad real estate is possible even if the bank grants you a mortgage. That’s why it’s still recommended that you have a lawyer look over everything.

In Spain it seems that lawyers have an even worse reputation than lawyers in the US. Many will avoid this process, possibly because they have adequate expertise themselves or they rely on the bank to do their due diligence.

I have already secured a lawyer who would handle the real estate purchase for me and oversee me applying for a mortgage in Spain. His firm charges double the rates of other legal firms and I would have to pay for him to fly here from Barcelona to handle the transaction – €1,500 in total. I’ll be writing about legal representation in another post.

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