Step-by-step guide to purchasing a house with a mortgage in Spain
The process of buying a property with a mortgage in Spain entails various steps and milestones.
Whether you are a first-time buyer or you are familiar with real estate transactions, understanding the steps involved can significantly simplify the process for you.
In this comprehensive guide, we will take you through each step, providing essential information to help you successfully navigate the process of purchasing a property in Spain.
Depending on who you talk to, steps can change order slightly, which is why it is key to talk to your real estate agent, solicitor and mortgage advisor early in the process to make sure everyone is aligned towards your goal – your new home in Spain.
1. Mortgage pre-approval
Before embarking on your purchase, it is crucial to obtain pre-approval for a mortgage, or at least talk to an expert mortgage advisor, before making a commitment on a property, so as to understand your mortgage requirements and possibilities.
The pre-approval process involves assessment and documentation of your income, outgoings and financial situation to determine the loan amount which you are eligible for.
Take into account that a bank’s pre-approval will later require an update of your financial documents just before completing the purchase. It is therefore key that your financial situation does not change from this time until completion. And if things do change, make sure the changes are for the better! It is worth noting that changes in employment can turn a viable mortgage into a no-go for banks.
Check our article on mortgage pre-approvals to learn more about this process.
Hipoteken can help you navigate this process from your initial enquiry about how mortgages work, all the way through to completing your purchase at the Notary.
2. Finding your dream home
If you haven’t already found the ideal property, with your mortgage pre-approval in hand you can more confidently begin your search for your dream home in Spain.
Whether it’s a holiday home, investment property, or your new permanent home in Spain, we recommend you start by hiring a reputable real estate agent who specializes in the local market. They will help you identify suitable properties based on your preferences and budget. Carefully evaluate each property and arrange viewings to get a first-hand experience before making any decisions.
If you have not yet chosen a real estate agency, ask your Hipoteken mortgage advisor to recommend you a reputable agent in the area you are interested in.
3. Making an offer and negotiating
Once you have found the property you would like to purchase, it is time to make an offer to the seller. In Spain, your real estate agent will typically handle this for you. They will put forward your offer to the vendor and help you negotiate the best deal.
You should make the offer in writing and include any conditions or requests you may have, such as any specific furniture you would like to include in the purchase. The seller may accept, reject, or counter your offer, which may result in negotiations until both parties reach an agreement.
Typically, this process will conclude with a reservation contract, subject to legal checks on the property and sometimes other conditions agreed to during the negotiations.
We recommend you appoint a solicitor before choosing your property or before you sign a reservation contract, but sometimes there is no way to reserve a property and have everything else ready simultaneously. If you are working with a reputable agent, they can safeguard the reservation deposit in their account and make it subject to legal checks on the property, which serves as an extra layer of protection for you.
4. Appointing a solicitor
Appointing a competent lawyer is a crucial step towards ensuring a smooth and legally sound purchase process. Your lawyer will guide you through the legalities, review contracts, perform due diligence on the property and protect your interests throughout the process.
It is essential to hire an experienced lawyer who specializes in Spanish property law to avoid any potential pitfalls. As property law varies from region to region in Spain, you should also contract a lawyer based in the area where you are planning to purchase.
Again, if you need help finding a lawyer, speak to Hipoteken and we can put you in touch with solicitors that we have worked with successfully in the past.
5. Property valuation
After agreeing the purchase price and taking the property off the market by signing a reservation contract, you will next require an official valuation or appraisal (“tasación” in Spanish). This will determine the property’s market value. This valuation is crucial in assessing the amount of money the bank is willing to lend you, as the bank will generally finance a percentage of either the purchase price or the valuation, whichever is the lowest of the two.
The lender or your Hipoteken mortgage advisor typically coordinates this process and will arrange for a professional valuer to inspect and assess the property’s market value, making sure the property is legally suited to serve as guarantee for the mortgage.
6. Private purchase contract
Once your solicitor has carried out legal checks to ensure the property is legally compliant, a private purchase contract (“Contrato de Arras” in Spanish) is usually drawn up and signed by all parties.
This contract confirms your intention to purchase the property and requires an additional deposit, which is typically around 10% of the agreed purchase price. This deposit ensures the commitment of both buyer and seller to complete the transaction.
If you decide to withdraw from the purchase after signing the reservation contract, you may forfeit your deposit. And if the seller decides to withdraw, they would have to pay back double the amount received as a deposit.
This step of the process, depending on your urgency, can happen before or after valuation, but it is crucial that you solicitor has completed all legal checks satisfactorily before you sign the private purchase contract, so you are protected.
7. Opening a bank account
Opening the bank account with your selected lender is a must at this point. Usually your lawyer will do this for you via power of attorney, although some banks have a fully online process, which will require paper or digital signatures to open your new bank account with the lender.
Once you have opened your bank account, you can start transferring funds into the account. Your solicitor and/or mortgage advisor will prepare a brief of all the payments planned for completing your purchase and the funds that you need to transfer.
You should take into account that the bank does not put the mortgage into your account. The bank arranges and makes all the payments to complete the purchase on the day you finalise the purchase at the Notary. This is the way banks ensure the funds go towards the completion of the property purchase, and also ensures their mortgage is registered correctly, with the property as the guarantee for the loan.
8. Preparation of final mortgage documents
Now all parties (seller, buyer and bank) have committed, the property valuation report has the correct value and there are no legal issues with the property, it’s time to prepare the purchase completion process.
The lender will proceed to prepare the final mortgage documents for you and your solicitor to review. As part of this process, the bank will request final documents and updates and you must set a purchase completion date. This is because the documents the bank prepares typically have an expiry date, which varies between 2 weeks and 2 months, depending on the bank. The documents will include an Allocation of Funds (“provision de fondos in Spanish”), which is a breakdown of the payments the bank will make in your name to cover costs associated to the purchase. For more information on this, see Step 10 below.
Once you and your lawyer have reviewed the documents, you sign and send them back to the bank.
9. Cool-off period and mortgage information
Once the formal documents have been revised and signed, they are sent to an online platform managed by the Spanish Association of Notaries. This is proof that you have signed the mortgage information documents and triggers a compulsory cool-off period before the mortgage can be signed.
The cool-off period starts the same day the documents are uploaded to the notary platform and lasts 10 days (15 in some parts of Spain).
During this period (or after it), there must be an initial meeting between you the buyer or your legal representative (with power of attorney) and the Notary. At this meeting, the Notary will give a full explanation of the mortgage terms, after which the buyer is asked to sign a document that is called the Pre-mortgage Deed (“Acta Previa a la Hipoteca” in Spanish).
The mortgage can be signed the first working day after the 10-day cool-off period has been fulfilled.
10. Completing the purchase
The date for completing the purchase will normally have already been set at this stage, but all the parties involved need to arrange the appointment with the Notary. The parties who need to attend are:
4. The lending bank, who will send a representative (usually from an external company)
5. Notary officer, who will make the appointment
Both buyer and seller are sometimes represented by a solicitor with power of attorney.
The bank (or your mortgage advisor) will agree the payments to be prepared for completion. Typically, the bank representative who will sign the mortgage will take banker’s drafts to the notary office, or they will have prepared the transfers required to be executed to complete the purchase.
The bank sometimes requires you to go to their office to sign paperwork before going to the Notary to complete the purchase, but this is not common and only occurs when the office is very near the notary.
Bank transfers to complete a property purchase in Spain are special. They are not carried out by a bank’s online platform, but must be made by the bank manager handling your mortgage.
On the day of completion, the bank will take the funds from your mortgage and the funds you have already transferred to your bank account with the bank and prepare the following payments:
- Remaining balance to the sellers
- Taxes, notary and land registry fees and other costs related to completing the purchase. All these costs are referred to as the Allocaton of Funds. You will have already been informed (during Step 8 – final mortgage documents) of the amount that will be taken from your account to cover these costs, which ensure the correct registration of the property in your name in the land registry and that all taxes are paid.
- Other products you have agreed to contract with the bank:
– Home Insurance – make sure your policy is activated on the day you complete the purchase
– Life insurance
– Additional services like health insurance, alarms, etc.
- Fees for advisors who have assisted in the purchase process, such as solicitors, real estate agents, mortgage advisors, etc.
You will be informed beforehand of all the payments to be made by your solicitor or your mortgage advisor, who typically provide a breakdown of all the costs so you know where all the money is going.
11. Completion and handover
Once the notary deeds are all signed, your purchase is complete. You will receive the keys from the sellers, who will have received their funds. Banks may require your online signature on their App at this stage to activate your home insurance policy or any other products contracted. Once this is done, all that is left to do is enjoy your new home.
The bank and their external collaborators (referred to in Spanish as the “gestor” or “gestoría”) are in charge of registering the property in your name at the Land Registry and obtaining final copies of the deeds.
The deeds themselves typically take up to 4 months to be fully registered and the bank will let you know when you can go and pick them up. The bank will also give you a full breakdown of all the registration costs and taxes paid in your name from the Allocation of Funds, and if there are any remaining funds, these will be returned to your bank account directly.
Keep all your property paperwork together and safe once you receive it and enjoy your new home!
Completing a property purchase with a mortgage in Spain involves several important steps that ensure a successful and legally sound transaction. By following this step-by-step guide, you can navigate the process with confidence, from obtaining a mortgage pre-approval to completing the final handover of the property. Remember to consult with professionals such as real estate agents, lawyers and mortgage advisors to guide you through each stage, ensuring a smooth and hassle-free experience. Happy house hunting!