Before you buy:
Take a loan or pay in cash?
Before you buy your new property, it is best to clarify whether you want to take a mortgage for the property or you pay for it cash from your savings Whatever you choose, we will help you in the process. Different options exist if you chose a mortgage option. There are various mortgage institutes working here in this area. It is also possible to borrow from Spanish banks, however, it is not as easy as it used to be, but we will help you if you want to apply for a loan from a Spanish bank.
There is also the possibility that you apply to a Mortgage Broker, they are English and Scandinavian speaking. They work in such a way that they send you 2 to 3 different mortgage options according to your wishes and your finances. They work with all Spanish banks as well as with some European banks providing loans in Spain. Their task is to find the most attractive mortgage for you, according to your wishes and your finances. The first contact to them and the initial discussion is free, if you wish to proceed they charge a small fee from you. The good thing about using them is that they represent you to the banks and they complete the application for you, of course, based on the financial information you submit to them.
We can recommend several companies in that area.
There are a couple of things that you must have in place before you as foreigners can buy a property in Spain. Of course, I will also help you with that.
As a foreigner in Spain, you must have a Spanish ID number. This can be requested at the police station ( Policia Nacional ) in the municipality where you plan to purchase. Application is made by personal attendance and of course help we can you to get it done.
You can also apply for the NIE number at the Spanish Embassy in your native country, as the delivery time may be quite long, you should check with us if there is enough time for that.
It is important to have an account in a Spanish Bank, from which all expenses can be paid, and also if you have a mortgage, it will be paid from that account also. Several of the largest banks’ branches in areas with many foreigners have one or more employees who speak English and in most cases they have translated their web-site into English.
We will of course help you set up a bank account.
By buying an “off-plan” property, you cannot, by the nature, see and feel what you are buying. But usually the construction company has built a “Show house”, which is a test house. Here you can see material selection and quality of construction.
The new builds offer are from highly-established construction companies with many previous projects, good reputation and well-funded. Well established accounting firm has checked all of our sales projects in advance and ensured that all papers are correct and legally sound, such as: Does the construction company have a building permit? Do they own the plot where they are building? Has the construction company signed a building insurance (This construction insurance covers 10 years from signing the deed. However, only major construction defects and other significant damages are covered. If a tile breaks or other minor damage, they must be pointed out shortly after the signing of the deed)
Once the home is found and the purchase needs to be completed, the procedure is as follows
You start by signing a reservation agreement and at the same time you pay a reservation fee of € 3,000 €. (This amount has so far been the standard for all construction companies, but now we see several construction companies that are asking for a higher amount in reservation fee). Within approx. 4 weeks you have to sign the actual purchase agreement. By signing this you have to pay the down payment, usually 30% to 50% of the total purchase price. At the time of signing the deed at the Notary, the balance is due. The percentage of down payment depends on the individual construction companies. With some of the construction companies we can negotiate, others have very fixed rates.
The purchase contract must contain a drawing that specifically indicates where in the complex the property will be located. It should also be stated which floor the apartment is on, if it is an apartment you are buying.
Before signing the purchase contract and paying the down payment, accounting firm will check the contract to ensure that it complies with Spanish law and that there is nothing in the contract that has not been agreed upon earlier. They will at the same time require the construction company to provide a bank guarantee for the down payment.
Purchase procedure for the purchase of resale home
The first step after finding the home you want to buy, is to make a written reservation agreement with the seller.
This agreement is usually only one or two A4 pages, specifying both parties’ name, address, identification of the home you buy, the agreed price, and a reservation fee to be paid by the buyer upon signing.
The reservation amount is normally between € 3,000 € and 5,000 €, this amount is normally held by the real estate agent. If you reject the purchase, you will lose the entire reservation fee.
With the reservation agreement in hand, you have one month to arrange assessment (if you have to borrow money for the purchase) and make sure that all conditions regarding the property are in order (ownership, old property debt, etc.). Of course, it is essential that accounting firm is involved in this process.
The next step is a purchase agreement, which is a fully binding agreement on all aspects of the deal. This includes an agreement on payment for electricity, water, joint expenses, etc. from the day of signing the deed. Also it is agreed which appliances and furniture are included in the price, but most important: the date of signing the deed and a down payment of normally 10% of the buying price.
Many are surprised at the costs the buyer has to pay when buying a home in Spain. In total, they usually reach between 13% and 14% of the purchase price + further approx. 4% if you need a mortgage to finance the property.
The vast majority are taxes. There is VAT (I.V.A.) of 10% on new build and 10% tax (transfer tax) for resale homes. Besides that, there is also a stamp duty of approx. 1.5% to be paid on new build.
Then the rest goes to the Lawyer, the Notary and the Property Register etc.
These amounts are due at the time of signing the deed. Accounting firm will give you a clear overview of all expenses and payments related to the purchase. They will also ensure that down payments and other payments are paid on time and after the contract.
We are recommending that you make a Spanish will when you buy property in Spain. The Spanish authorities must respect the inheritance law in your country, but it is your obligation to prove it in the court of law in Spain and it can be a cumbersome, expensive and long-term affair. There are examples that it has taken 2 1/2 years before an inheritance case has been terminated due to the absence of wills. It’s only a one-time expense to make it and it can save you a lot of hassle and trouble.
In addition to any interest and mortgage costs, there are other running costs to be taken into account, whether the property is used the whole year or only as summer residence.
Local tax (IBI) is calculated on the basis of the official assessment of the property, but the percentage differs according to which municipality the property is located in.
The property tax is relatively low. For a regular apartment or a townhouse, it is generally between € 250 and € 800.
If the owner is not a resident, then a separate capital tax (“Valor Catastral”) must also be calculated, it is calculated by the fair value.
Most homes will be part of a “Urbanization”, thus having a landowner association that takes care of community areas and collects community costs.
Community expenses depend very much on which facilities the community area has, such as swimming pools, gym, tennis courts, community satellite TV, as well as administration offices and security guards. Normally it is from € 250 to € 650 yearly, but may in some community´s be higher. The cost depends entirely on which services are included in the community expenses and how many homes there are to pay the total expenses.
All properties will be charged an annual amount for waste collection, which will be determined by the municipality. If the property is part of a major urbanization, this amount is usually less than € 100 per year.
Electricity and Water
Electricity and water, are paid by meter. So it is difficult to calculate how much is used per year, as it depends on how much the home is used.
In urbanizations, the landowners’ association takes care of the insurance of the communal area; However, accidents such as water damage, which may affect the downstairs neighbor, fire, burglary do happen and home insurance, are of course the responsibility of the owner himself. The size of the premium depends on the value of the property and the age of the property, but usually it will be between € 250 and € 500.
Anyone who owns a property in Spain must file a tax return. If you are not very good at Spanish yourself or want to get into the entire Spanish tax system, it is necessary to appoint a tax representative who can charge your tax and pay it. (It is now mandatory that you appoint a Spanish tax representative, but you may be responsible for your tax return anyway).
If you only have the property to declare, it should not cost more than € 150 to € 300 per. year.
We recommend you to use an accounting firm as your tax representative.