How do mortgages work in Spain for foreigners?

When buying a property in Spain, it's really important to know how mortgages work for non-residents. 

In this handy article, we'll help you grasp the essentials like the types of mortgages available, what you need to meet to be accepted, and how to get the best offers. 

Whether you're comparing Spain's mortgage system to the UK or the US, or you're looking to understand specific terms, we'll break it down simply.

How do mortgages work in Spain for foreigners?

Mortgages in Spain work similarly to other countries but have some important differences, especially for non-residents. 

The interest rates, for instance, are tied to Euribor, a key benchmark rate in Europe. 

Spanish banks typically use the 12-month Euribor, which can make rates vary significantly.

To buy a property in Spain, non-residents also need a NIE (Foreigner Identification Number) and may have to provide larger deposits.

Compared to the UK or US, Spanish mortgages are slightly stricter in terms of down payments and documentation for non-residents. 

In the US, a median downpayment is 15%, according to the National Association of Realtors (NAR). This generally applies to both residents and non-residents. This is because non-residents in these countries often have access to similar lending options though additional requirements may be imposed depending on the lender.

In Spain, on the other hand, non-residents will need to save up a bit more before applying (30-40%). Still, that's not unheard of in other countries, such as Portugal.

Types of mortgages in Spain for non-residents

Several different mortgage options are available from Spanish banks based on your needs and financial circumstances. 

Here's what they are:

Fixed-Rate Mortgages

These mortgages have the same interest rate for the entire loan period. Thus, your monthly payments will always stay the same, making planning your budget easy.

At Cajasur, loan amounts are available from 80,000 to 1,000,000 EUR, but only for the purchase of a first home in Spain for personal use.

Variable-Rate Mortgages

These mortgages have interest rates that can change over time based on the Euribor rate. If the Euribor rate goes down, your payments might get smaller, but if it goes up, you could end up paying more. 

Sabadell, for instance, offers a quick and straightforward application process and Hola Bank loans of up to 2.900.000 EUR.

Mixed Mortgages

A combination of both fixed and variable rates. Usually, they start with a fixed rate for a few years and then switch to a variable rate.

Non-residents, just like locals, often choose fixed or mixed mortgages to avoid the risk of currency changes affecting their payments if the Euribor rate changes. 

However, not all banks offer all three choices. Bankinter only offers fixed-rate mortgages to borrowers who earn in EUR.

What are the eligibility criteria for non-residents?

To get a mortgage in Spain as a non-resident, you need to meet several specific requirements that might be different compared to your home country:

• Employment tenure: Banks prefer stability, so having steady employment or proof of income is crucial.
• Affordability: You need to prove you can afford the mortgage. The highest permitted effort ratio in Spain is 40%. This implies that your new mortgage and your existing rent or mortgage should not equal more than 40% of your net monthly income.
• Loan-to-Value ratio (LTV): For non-residents, banks typically offer up to 60-70% of the property value.
• Property value: Some banks have minimum thresholds for both property and mortgage values, often not considering applications for properties below €100,000 (with a mortgage of at least €70,000).

"One of the common mistakes when applying for a mortgage is not checking your credit rating in your own country first. Your credit rating is important for mortgage eligibility and is based on your credit history," says Natalia Dominguez, International Buyer’s Manager at UCI. “Depending on your nationality, it is recommended that you check your credit score beforehand. This way, you'll avoid unpleasant surprises later on and better understand your financial situation, allowing you to make a more informed decision.”

It’s rare for foreigners to secure 100% financing for a mortgage in Spain, as banks typically do not lend this amount. 

There are specific situations, such as purchasing a property owned by the bank, where this may be possible. The restrictions are generally stricter for foreigners compared to residents.

How do Spanish banks deal with non-EUR customers?

Spanish banks will love to work with you if your income is in USD or GBP. 

On the other side, more volatile currencies may restrict your alternatives, so stronger currencies are typically more acceptable.

In some cases, you may need to set up a holding company, known as a Sociedad patrimonial, which allows more flexibility when it comes to aligning the loan currency with your income currency.

Homevest helps you understand your buying power in Spain

When planning to secure financing as a non-resident, knowing how much you can afford from the outset can make your next steps clearer. 

Homevest provides an estimate calculation to help you understand how much you can potentially borrow from Spanish lenders.

Getting a budget estimate with Homevest is quick and easy, giving you a clear overview of your buying power. You’ll receive a personalized estimate showing your price range, delivered directly to your inbox.

What Spanish mortgage terms should you be aware of?

Hipoteca is how you say mortgage in Spanish, a term you'll often see in paperwork. Here are the most important terms you should remember:

• NIE (Número de Identificación de Extranjero), required ID for foreign buyers.
• Comisión de Apertura, the opening fee for setting up the mortgage.
• Gastos de Formalización, the costs associated with formalizing the mortgage.
• Contrato de Arras, the reservation contract, similar to a deposit agreement.
• Nota Simple, the document that confirms property details from the land registry.
• AJD (Actos Jurídicos Documentados), the tax on notarized documents.
• ITP (Impuesto de Transmisiones Patrimoniales), the transfer tax for buying second-hand properties.
• IVA (Impuesto sobre el Valor Añadido) or VAT, value added tax, is typically around 10%.

Sources used and checked in October 2024:

1. Property Tax International
2. Expatica
3. Bankinter
4. Wise
5. Banco de Espana
6. Nerdwallet

We recommend obtaining professional or specialist advice before taking or refraining from any action based on the content in this article. The information in this article does not constitute legal, tax, or other professional advice from Homevest Limited. Prior results do not guarantee a similar outcome. We make no representations, warranties, or guarantees, whether express or implied, that the content in this article is accurate, complete, or up to date.