Welcome to part 2 of my series on making the leap to homeownership in Spain. In part one I shared my experience with finding an apartment and making an offer. And now… how did I get a mortgage in Spain?!
Do you need to obtain a mortgage in Spain or Portugal? Check Spainguru’s recommended mortgage brokers
So after I put in the offer that Friday I went straight to my bank (ING Direct) to put in an application for a mortgage in Spain, even though I didn’t know what the seller’s reaction would be.
Counter-offer
I was very nervous that whole weekend. On Monday the agent called me to come to the office. The seller put in a counter-offer, and was asking for €3,000 more, which is still very reasonable so I accepted. I even invited some friends to my place to toast for some champagne!
Starting to get the mortgage in Spain
The agent said they could provide a service with their mortgage brokerage services (Dcredit), but I just refused and was optimistic things would be fine with my bank (ING Direct). After all I was a loyal customer for many years with a decent amount in my savings and checking account.
But to my dismay, I logged onto my online banking that same afternoon and all it told me was “Operación no viable.” My heart sunk – this couldn’t be?! I still had some friends over for a toast but I was very distraught.
That evening I was frantically trying various mortgage calculators at different bank websites but felt overwhelmed.
(As a side-note, I was asking around and I found out anecdotally that ING Direct doesn’t want to deal with US Citizens for pension plans or mortgages in Spain due to the difficulty of complying with US tax reporting and finance laws, so they generally only offer basic banking services to US Citizens. This made me feel a bit better about being rejected)
My decision to use a mortgage broker
The very next day I called my agent to say that I would like to meet with their mortgage broker for a financial assessment to help get a mortgage in Spain. She told me to bring the following documents for the financial assessment (*note that I am autonoma “cuenta propia.” For people who are employed by a Spanish company “cuenta ajena,” there are different requirements. And for foreigners who don’t even live in Spain or who don’t pay taxes in Spain there are other requirements):
- last 6 months of bank transactions
- last Spanish tax return declaración de la renta
- modelo 130 (quarterly tax return reports for the last year)
- modelo 303 (IVA quarterly reports for the last year)
Do you need to obtain a mortgage in Spain or Portugal? Check Spainguru’s recommended mortgage brokers
My situation
Based on reviewing the provided information, I came to learn that: a) being a foreigner, especially one from the US with strict tax reporting laws; and b) being an autónomo (freelancer) – these were two factors that could be obstacles in getting a mortgage in Spain.
Basically, without knowing the whole picture, banks may not be trustworthy of my situation because what if my monthly income doesn’t stay stable and there’s no guarantor to verify it.
Fixed contracts
People who have fixed contracts (indefinidos) are in the best place to get a mortgage in Spain more easily, even without a broker. Thus I could benefit from a broker who could vouch for me, has personal connections at the banks, and could gather more documents from me to paint a better picture about my stability.
The broker
The broker, who was of course trying to sell his firm’s services, explained their guarantee to get financing for clients. They said I would just have to pay a one-time fee to have them do all the negotiating, submitting documents etc. to present the best approved option.
Complications
To make things more challenging, I was going to be traveling to Germany for work for basically all of the following weeks. So, I figured hiring a broker would be the best option. When I accepted the counter-offer, that became a binding contract which said I had 40 days from the date it was signed to finalize the whole mortgage/escrow/deed process.
Broker fees
The broker was asking for 5,000 euros off the bat, I negotiated it down to 3,500 (Note that this information is subjective and perhaps I paid too much compared to what other people may experience, but I was desperate to find a solution since I was going to be traveling for work).
The service
From then he said he would submit all the documents, and get any additional documents needed on his own with my authorization, to submit it for mortgage approval to be able to present the options. (Note: If you don’t use a broker, here is an example list of things normally requested from banks to do a mortgage approval process).
In my case, to further prove my status as a client I did have a work contract for autónomo work that I could show, which he said was valuable in demonstrating my financial stability (which may have not been asked by other banks if I did it on my own).
He said they would also proceed to do the appraisal on their end, which would later be transferred to the mortgage bank. The appraisal was done a few days later and luckily the value came to be just slightly higher than the purchase price.
Types of mortgages in Spain
There are two types of mortgages in Spain: adjustable-rate (which is called “variable” in Spain), and a fixed rate mortgage.
The adjustable-rate/variable mortgage is usually tied to the EURIBOR (Euro Interbank Offered Rate) which is a daily reference rate, published by the European Money Markets Institute, based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market.
What this means
Basically, this means a bank may offer a mortgage in Spain for a certain number of years, at perhaps around 1% + EURIBOR. Normally, for the first year, the bank will offer a fixed-rate, and then for the subsequent years, it will be something like 1% + The EURIBOR. Right now, the EURIBOR is negative, which would mean the bank’s interest rate provided + 0. The rate could be reviewed every six months based on market changes.
The pros and cons
An adjustable-rate mortgage can generally yield better returns and loans can last longer – even up to 40 years. I was told that most Spaniards choose adjustable-rate mortgages. The downside is that there is unpredictability as the interest rate changes, thus for people who like to have a clear monthly budget, this could change from time to time, and there is also the possibility that the interest rate could skyrocket – making monthly payments much higher.
Fixed-rate mortgage
A fixed-rate mortgage is exactly what it sounds, the interest rate is the same and will never change throughout the life of the loan. The advantage is that there are never any surprises, making it easier to budget. However, the interest rates tend to be higher to compensate for the stability and lack of risk, and the life of the loan tends to be shorter.
My mortgage options
Three days later, the broker said he already got a provisional approval from a bank and I came back in!
In Spain, generally for a first home purchase, the general rule is that the bank will give up to 80% of the appraised value. Thus, the buyer is responsible for a 20% down payment + closing costs and any commissions which can be an additional 10% of the sale. For buyers seeking a mortgage in Spain, a good rule of thumb is to have at least 35% of the costs ready to pay.
So I was looking to get a mortgage to cover 80% of the house costs (not even factoring in the over 10% for the closing costs and commissions) – so I needed a loan of 126,400.
The broker presented these as the best pre-approved options to me, without revealing which bank it was:
Option 1: Fixed-rate mortgage for 30 years
- Fixed interest rate: 2.2%
- Loan opening cost and assessment: €500
- Pre-payment penalty for any complete or partial payments: 0%
Option 2: Adjustable-rate mortgage for 30 years
- Interest rate in the first year: 1.2%
- Interest rate for the rest of the years: 0.80% + EURIBOR
- Loan opening cost and assessment: €500
Pre-payment penalty for any complete or partial payments: 0%
For both options, the following services were required, which are called “Vinculaciones” to access the above competitive rates:
- Payment protection insurance (around 1,700, which was added to the loan)
- Life insurance (around 5,400, which was added to the loan)
- Home insurance – (n my case, yearly payment of around 330)
- And since I’m a registered freelancer, I would have to charge my monthly autónomo payments for social security to this new bank account that would be opened.
- (*Note that these “Vinculaciones” will change from bank to bank and from person to person, so just use this as a guide)
Side note!
I would like to highlight that the pre-payment penalty (Comisión amortización total y parcial) is very important to consider because some mortgages may be offered with a commission fee for making early payments, which would “punish” you from paying off your mortgage faster. If there is no pre-payment penalty, you can drastically reduce the duration of your loan whenever you have money saved up and ready.
*Second side note: I am ONLY sharing what was offered to me, and everybody’s individual case will be different. You may be offered more competitive or less competitive offers than what was offered to me.
What did I choose?
After contemplating the options and consulting with my family, I decided to go with the fixed-rate mortgage. Trusted Spanish friends were advising to go for the “cheaper” deal with the adjustable-rate mortgage, but since the rates were very competitive, I opted for stability with the fixed-rate mortgage.
Also, even though I would like to think that EU markets will remain stable, I am reminded of the subprime mortgage crisis in the US (which caused the 2008 financial crash), that was largely fueled by volatile adjustable-rate mortgages.
The end of the process
After accepting the above conditions, I received the paperwork and found out the bank was Sabadell (which I have also learned is used to dealing with US citizens as clients). A few weeks later, when I was finally back in Madrid in between my Germany trips, I went to the bank and signed lots of documents:
- Health declaration for life insurance (which involved the banker asking me several questions about my health and for me to say yes or no and sign several times)
- FIPER – La Ficha Informativa Personalizada de tu hipoteca – Document detailing my personalized details for my mortgage in Spain
- FATCA declaration form, since I am a US Citizen
- Bank account opening contract
After that, everything was smooth sailing and the only thing left before the flat was officially mine was the notary appointment for signing the deed with the seller, and signing the mortgage legal paperwork with the bank representatives!
*Disclaimer: I am not a professional in providing advice for home-buying, financing or mortgage options. This article is meant strictly to be informative based on my own personal experience. Everybody’s experience based on their own financial situation is different.
Do you need to obtain a mortgage in Spain or Portugal? Check Spainguru’s recommended mortgage brokers
