REAL ESTATE- FINANCING – What do I need to know before buying a home in Spain?

REAL ESTATE- FINANCING – What do I need to know before buying a home in Spain?

What do I need to know before buying a home in Spain?

Buying a home is one of the most important decisions of our life, especially financially speaking. Therefore, before taking the final step, it is advisable to take into account some questions

Before buying a home, one of the first assessments to be made is whether it is a good time to purchase. The current context of low interest rates constitutes a good opportunity to sign a mortgage, as well as the situation derived from the COVID-19 pandemic. What other questions are the most frequent?

What is my financial and personal situation?

The decision to buy a home should not be taken lightly, but must be made with planning and preparing a budget, which requires analyzing the personal situation and the family finances. Do I have financial solvency to buy a house? Do I have enough job stability? Having the right professional advice can help clarify these types of issues.

How much should I have saved?

Most likely, to buy a home a person will have to request a mortgage, since this operation involves a significant outlay of money. At this point, it must be considered that banks grant mortgages of a maximum of 80% of the appraised value of the property, so it will be necessary to have the remaining 20% in savings. In addition, to this must be added the purchase and sale expenses – notary, appraisal and taxes – which raise the need for savings between 10% and 15% more. Therefore, to acquire a property, around 30% of its value is required.

How do you know if a home is expensive or cheap?

Another of the most important points to analyze before buying a home is its price. In addition to being carefully informed about the purchase prices of the location where you are looking for a home and how these have changed in recent months, to know if this adjusts to the real value of the house, you must pay attention to profitability gross per rent and the price earning ratio (PER). The first factor is the percentage resulting from dividing the money paid per year for rent by the sale price of the house and multiplying it by 100. The higher this indicator, the better it will be for the owner. For its part, through the PER, the number of years it will take to pay a property with the current rent that is being paid is known.

What taxes do you have to pay to buy a home?

Each type of home is associated with the payment of different taxes. That is, it does not cost the same to buy a new-build home as a second-hand home. When acquiring a new property, you must pay 10% of the value added tax (VAT) on the purchase value, while if you opt for a second-hand one, you will not have to pay VAT, but the property transfer tax (ITP ). This tax depends on each autonomous community, although the average ranges between 6% and 10% of the total value of the home. In addition, in the second hand you have to review the status of charges, that is, it is necessary to know if the house has debts or not, analyze the general expenses that must be faced and even possible spills.

Is it necessary to sign a reservation contract?

While the process of buying a home progresses, there are two formulas to guarantee that the operation concludes successfully:

  1. Reservation contract: it is a document through which the buyer reserves the house in exchange for the payment of an amount of money, known as ‘the signal’, which will later be subtracted from the price of the house. Once the deadline is over, the seller agrees to deliver the property.
  2. Deposit contract: through which an amount of money is also paid, but which, unlike the reservation contract, offers the possibility of terminating the contract by paying compensation.

What requirements must I meet in order to be granted a mortgage?

All the requirements are included in one: demonstrate that you have solvency. For this, having a stable employment situation, a demonstrable fixed income – approximately three times the future monthly mortgage payment -, in addition to a good credit history, are essential conditions.

What to choose: a fixed rate or variable rate mortgage?

Before making the decision, you must take into account what each type of mortgage entails:

  • Fixed rate mortgage: the monthly payment will remain fixed throughout the mortgage contract.
  • Variable rate mortgage: the monthly installment will have a fixed and a variable part, which changes depending on a reference rate, which is usually the Euribor and which banks usually review every six or every 12 months. If this indicator goes up, so will the monthly mortgage payment and vice versa.

In addition, there are mixed mortgages, which are a combination of the previous two, in which a fixed rate is applied during the first years of the loan, to later apply a variable interest with reference to the Euribor.

Under standard conditions, fixed rate mortgages have higher interest rates than variable rate mortgages. However, in the current context, there are entities such as Banco Sabadell that have more attractive fixed rate loans than variable rate loans.

How many years can a mortgage be requested?

In a mortgage loan, two variables must be taken into account: the duration of the contract and the interest rate. As a general rule, the longer the loan, the lower the monthly payment. Instead, the interests will be higher.

This choice will depend on the level of income. With a high income, you can opt for a mortgage with a term ranging between 10 and 15 years. On the contrary, if the future owner has a low income level, the term can reach up to 30 years.

Do I have to purchase other financial products related to the mortgage?

As a general rule, the person who signs a mortgage is not obliged to purchase other products related to the mortgage such as insurance or direct debit of the payroll. However, the entity will surely offer better conditions if it is contracted jointly.

What are the conditions if they lend me money to buy a home?

Two situations can occur:

  • Receive the borrowed money: it is a procedure that must be done in writing, either in a public deed or in a private contract (whether with or without interest) and the corresponding ITP declaration must be submitted.
  • Receive a donation: it is also advisable to write this operation, which is subject to inheritance and gift tax (ISD), the amount of which depends on each autonomous community.

In Marbella WOHNEN Immobiliem we have the right experts for each of the phases of buying a property. If you need help dealing with banks

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