Guide to the Spanish Mortgage Process
The process of getting a mortgage really sets in motion once you have identified the property of your choice and signed the sales contract with the vendors. It is possible, and in some cases recommendable, to start building your mortgage file before the sales contract is signed.
STEP 1 – Decide on the most suitable mortgage option for your project
Once we have discussed your future project and current financial situation, we will research the best solutions for you. It is important that you give us all the necessary information by filling out the mortgage questionnaire. It is best if we fully understand your situation and needs before making any proposals.
STEP 2 – Build your mortgage request
We will send you the list of paperwork needed to submit an application for a Spanish mortgage. Although we understand the complexity of obtaining certain documents, we cannot stress enough the importance of submitting a clear and complete file to the banks. This is why we are here to help you. Sending incomplete information to the bank’s underwriting departments will only cause confusion and additional delays.
STEP 3 – Underwriting process
In general, once your full file is submitted to the bank, we will usually get initial feedback within 2 days. Depending on the amount requested, some bank agencies have the possibility of approving your request without submitting it to the higher loan committee. However, for higher loan amounts, there are different steps we need to go through and this will prolong the process.
STEP 4 – Mortgage offer
It is now time for the bank to give you the offer in principle, called “oferta vinculante”. The offer always depends on the valuation of the property. This means that if there is a big difference between the valuation and the proposed purchase price, the bank is in its right to change the offer. Under normal circumstances this process does not tend to pose big issues.
It should also be noted that to pay the monthly installments of your new mortgage, a bank account in the bank will usually be required.
STEP 5 – Life Insurance/home insurance
It is obligatory in Spain to have a home insurance to cover the value of the property. Life insurance is not obligatory but most banks will encourage you to do one as they see it as a plus in the mortgage application. Normally banks will improve the interest rate if you contract the insurances with them.
STEP 6 – Completion time!
Once you have signed the mortgage offer, the notary and the bank will contact you to set up the date of completion. This process usually takes 2-3 days. If further documentation is required, it can take up to a week or even more if the involved parties don’t provide the requested documents. In total the whole process normally takes between 2-3 weeks to finalize.
In order for the bank to approve you for a mortgage, they look primarily at two factors: loan to value and debt to income.
Loan To Value (LTV)
For Spanish residents, banks usually offer to lend 80% of the purchase price (excluding fees).
There exists an option to get up to a 100% by purchasing a repossessed property through the bank. Please get in touch if you are interested in more details on the requirements for this option.
For Non residents, the maximum loan to value banks offer at the moment is 70% of the purchase price. That being said, it is common that they only give 60%.
The percentage can vary depending on the country in which you reside/declare your taxes and your mortgage preferences.
Debt To Income (DTI)
One of the most important elements when applying for a mortgage in Spain is INCOME and DEBT. The relation between these two is important as it gives the bank information on how much you are able to pay per month for a mortgage. The bank will only allow your total debt to represent a certain percentage of your gross income. The percentage will vary on a case to case basis but for residents the banks will usually accept a DTI of 30-35% (up to 40% in special cases). For non-residents the accepted DTI is set to 25-30%, depending on the LTV.