Complete guide on how to apply for a mortgage as a foreigner

14 June, 2023 | Alba Tebar

Obtaining a house in Spain is not an easy process. Both for residents and foreigners, the process of granting and approving a mortgage by banks can be lengthy and complicated. And even more so if you are a non-resident.

For these reasons, it is worth turning to a mortgage broker who can advise you and guide you so that you can obtain the best mortgage on the market, even as a foreigner. In these cases, do not hesitate to contact Hipotecasplus, our team of professionals who have been serving our clients for over 25 years to get them the best conditions and offers in the mortgage market.

To begin with, a non-resident or foreigner is considered someone who has not stayed in the country – in this case, Spain – for more than 183 days throughout the calendar year and does not have the main nucleus of economic activities or interests in Spain (either directly or indirectly). Therefore, all these factors will be taken into account when applying for your mortgage, so it is important that you know the steps you must follow to obtain a mortgage in Spain as a foreigner.

So, we proceed to explain in this complete guide how to obtain a mortgage in Spain as a non-resident. Pay attention: grab pen and paper! And if you have any further questions, do not hesitate to contact our team of experts. We will be happy to help and advise you.

Requirements to grant a mortgage to a non-resident

As you may know, banks do not grant mortgages unless you meet a series of requirements beforehand. It is the way for financial institutions to ensure that they are granting a loan to someone with sufficient solvency and economic stability to make it profitable for them and to repay the loan in question.

In the specific case of non-residents, the imposed requirements are slightly stricter than for the rest of the population. We take this opportunity to remind you that when we talk about non-residents, we include both foreigners and expatriates (Spaniards working abroad). That is, from a financial point of view, anyone who lives abroad or, despite living in Spain, contributes to another country’s economy is considered a non-resident.

Before going into more detail about all the requirements you must meet to obtain approval for your mortgage, remember that you must have a valid NIE (Foreigner Identification Number).

 

Degree of financing

In the case of non-residents, the degree of mortgage financing granted by banks will be lower than that given to Spanish residents. In other words, while there is a small possibility of obtaining 100% financing if you are a Spanish resident, as a non-resident, you would not have the possibility of obtaining this full financing. The reason is obvious and it is that this purchase will either be a second residence or a home to rent.

Likewise, it is not the same to come from a country in the Eurozone as from other parts of the world. These factors, for better or worse, are very important for banks when granting loans since they trust more in banks with which they share the same currency (the Eurozone) than others, based on solvency. This is due to currency risk. With the current regulation, you can change the currency in which you pay the mortgage at any time. Suppose you live and work in France, you have bought a home in Spain and you pay the mortgage in euros. It’s going well for you because you earn in euros when you live in France. After a while, your company promotes you and proposes that you move to the United Kingdom to live and work and therefore you start to get paid in Pounds. You can ask the bank that from now on you want to pay the mortgage in Pounds.

Therefore, if your income comes from a country in the Eurozone, you will need to contribute around 30% of the purchase price of your property plus the closing costs. In other words, the bank will finance approximately 70% in advance.

On the other hand, if your income comes from any other part of the world that does not use the euro as the official currency, the situation is different. Depending on the currency you use, the financing degree may still be 70% of the purchase price of the property, or this financing degree may be reduced to 50%.

And you may wonder: ¿What does it depend on? Basically, it’s about how strong the currency of your home country is or its exchange rate. In the case of the dollar, the pound  or mexican peso, Spanish banks will feel “secure” and won’t put as many obstacles when negotiating with you, making it more likely for them to finance up to 70% of the loan.

Accepted Currencies

We emphasize this aspect again because it’s crucial: not all currencies in which you receive income as a non-resident will be accepted by banks as a general rule. However, there is a long list of accepted currencies, which we detail below.

• British Pound (GBP)
• US Dollar (USD)
• Canadian Dollar (CAD)
• Danish Krone (DKK)
• Norwegian Krone (NOK)
• Swedish Krona (SEK)
• Czech Crown (CZK)
• Polish Zloty (PLN)
• Swiss Franc (CHF)
• Hungarian Forint (HUF)
• Croatian Kuna (HRK)
• Romanian Leu (RON)
• Bulgarian Lev (BGN)
• United Arab Emirates Dirham (AED)
• Qatari Riyal (QAR)
• Saudi Riyal (SAR)
• Israeli Shekel (ILS)
• Russian Ruble (RUB)
• Japanese Yen (JPY)
• Mexican Peso (MXN)
• Icelandic Krona (ISK)
• Singapore Dollar (SGD)

And, this is not by chance. In fact, it’s explained by the implementation of the 2019 mortgage law, which allows the debtor to convert the loan into their foreign currency, where they have their habitual residence or the majority of their assets. Therefore, the borrower can request a change to the foreign currency during their mortgage loan with the bank.

This new law puts banks in a difficult position as it exposes them to additional risk. That’s why, in general, they have limited the granting of mortgage loans to residents of the Eurozone or countries with stable or “friendly” monetary policies, such as the United States, the United Kingdom, and some Scandinavian countries.

However, there is a solution if you have a different currency than the ones mentioned above. If you want to buy for investment purposes (i.e., renting out the property), or spend seasons, you could establish a limited company (SL). This has the advantage that you will be granted a 30-year mortgage, although, on the other hand, you will have to pay the Stamp Duty Tax but it also has the advantage that you can deduct interest.

Level of Indebtedness

On the other hand, there is the issue of indebtedness. In this regard, remember that, as recommended by the Bank of Spain, the monthly mortgage payment should be equal to or less than 40% of your total monthly income, taking into account other loans or payment obligations.

Job Stability

In this line, financial institutions will consider whether you have a stable and long-term job. The reason is obvious: stable employment equals a stable income, which translates into reassurance when it comes to collecting mortgage payments. Therefore, banks will require you to have a permanent employment contract with at least one or two years of seniority in the same company as a requirement for granting the mortgage loan.

Amortization Period

The amortization period for non-resident mortgages can be 20 or 30 years. It will ultimately depend on the specific bank. Nevertheless, it’s important to highlight that, until now, a longer term implies a higher interest rate.

In these cases, at Hipotecasplus, we can advise you to help you discover which options would be more advantageous for you and which amortization period would be more stable.”

Required Documentation

Before granting you a mortgage, it will be necessary to provide a well-regulated set of documentation to prove and demonstrate certain aspects that are crucial for banks. It is for these reasons that we recommend seeking the assistance of a mortgage broker like ours, as we will guide and advise you on everything necessary to ensure that you have all the required documentation in order.

The documentation required is the following:

• Photocopy of NIE (foreigner identification number) and passport
• Credit report
• Employment contract / certificate from the company indicating position, length of employment, and compensation.
• 3 most recent payslips obtained in the country of residence
• Bank statement for the last 6 months
• Six most recent receipts of outstanding debts, such as loans or mortgages
• Income tax return
• For self-employed individuals:
  • Accounting letter
  • Income tax declaration for the last 2 years
  • Audited accounts for the last 2 years
• Contract of the property to be purchased

What do you need to obtain the NIE?

The NIE (which is the equivalent of a national identification number for foreigners) is an essential document for authorizing the purchase of a house in Spain. For this reason, we will explain how you can obtain the NIE.

The NIE can be requested directly in Spain or at the Consular Office of your place of residence. You can submit the application yourself or through an authorized representative, but it must be done in person.

According to the website of the Foreign Services of the Spanish Government, if you are going to stay in Spain for more than 3 months, you must apply for the NIE directly at the immigration offices.

In any case, you will need the following documentation to apply for the NIE at the Consular Offices:

• A duly completed and signed NIE application form
• The original and a copy of your valid passport, including the biographical data page
• If you are a citizen of an EU member state, your original ID card (DNI) will be sufficient

Additionally, the following will also be required:

• Original and copy of the document proving the purpose of obtaining the NIE: employment contract, investment, property acquisition, etc.
• Original and copy of the passport, as well as 2 passport-sized photos. If you are a resident of the EU, you can provide your visa, boarding pass, or another analogous document that certifies your entry into Spain.
• Finally, you will need to pay a fee of €10.71 for obtaining the NIE.

It is important to note that, as a general rule, you can obtain your NIE within an average period of two weeks, unless there are exceptional circumstances.

Credit Risk Report

In all mortgages, as you may already know, you need to provide the bank with a payslip, employment contract, tax declaration, and employment history. However, in the case of non-residents, you will also need to provide the bank with a credit risk report regarding your economic profile in the country where you reside or have the majority of your income. This way, you can justify the origin of your funds and avoid suspicions of money laundering or other illegal operations.

Lastly, remember that all documentation submitted to the bank must be properly translated by a certified translator, at the client’s expense.

Taxes Associated with Property Purchase

Along with a property purchase, there are always associated taxes. It is inevitable. So, let’s explain the expenses you will have to face if you acquire a property in Spain.

VAT (IVA in Spanish)

The applicable VAT for a new property is 10% of the recorded amount, except for social housing under special regulations or public promotion. In these cases, the required tax rate will be 4%.

Stamp Duty Tax (IAJD in Spanish)

This tax is only applicable in the case of purchasing a new property, where it is added to the VAT (IVA). It’s important to note that the maximum rate set by autonomous communities for this tax is 1.5%.

Inheritance Tax (ITP in Spanish)

For second-hand or used homes, each autonomous community establishes a specific percentage for this tax, so buying a house in different regions, such as Bilbao or Barcelona, will have different tax rates. In general, some communities have a 10% ITP rate, while others have rates below 4%. For example, the Basque Country has the lowest rate at 4%, while regions like Catalonia or Valencia have higher rates at 10%.

Property Taxes

• Property Tax: This is an annual tax paid to the municipality where the property is located.
• Waste Collection Fee: This fee covers the cost of waste collection services.
• Non-Resident Income Tax: If you generate rental income from your property, you will be subject to this tax. The tax rate is 19% or 24% depending on your country of habitual residence.
• Capital Gains Tax (“Plusvalía” in Spanish): If you make a profit from selling your property in Spain, you will be required to pay this tax to the corresponding municipality.
• Wealth Tax: This tax is only applicable if your assets exceed a value of €700,000.

Other Associated Expenses

There are additional expenses to consider, such as obtaining a property registry certificate (nota simple) from the Property Registry, property valuation fees (€400-550), and broker fees, which vary depending on the complexity of obtaining the mortgage. Non-residents may also need to remove payment protection insurance and may be offered private medical insurance associated with the mortgage.

The role of a mortgage broker

As you can see, obtaining a mortgage in Spain as a non-resident can be challenging, involving various requirements, specific documentation, and associated taxes. Therefore, at Hipotecasplus, we invite you to rely on our assistance and advice throughout this process, so that everything runs smoothly and you can achieve your desired goal.

If you have any questions after reading this guide or wish to start the process of obtaining a mortgage, please don’t hesitate to contact us. We will be delighted to help you realize your dream of owning a home in Spain!