Buying a home is very common in Spain, unlike other European countries where they prefer to rent and therefore do not resort to loans to buy houses. The reason may be cultural or because in Spain we prefer real estate investments than financial investments.
And also because of beliefs that say it is better to buy houses because renting is throwing money, or because the price of the apartments never goes down. False beliefs as we have seen after the bursting of the housing bubble, a period where every year new records were broken in the purchase of new or second-hand homes.
That is why many people were looking to buy houses as an investment, that is to say, to buy to rent or even worse. Buy to sell in the future, since the price rose steadily year after year.
Sometimes these investments were focused on second homes, that is to say those destined for holiday rentals and located on the Spanish coast: Murcia, Valencia, Alicante, Malaga, etc.
Although the increase in the purchase of houses on the beach, it was also due to foreign retirees from Great Britain and Northern Europe. That attracted by the sun and the free health, they said to buy apartments and houses in Spain.
It also triggered the purchase of houses by tenants who wanted to buy their first home, to save money for rent because the monthly mortgage payment was cheaper or they could execute a purchase option.
But also thanks to employment in the services and construction sector, along with mortgages with 100% financing, loans to buy homes for non-residents also shot up.
But a very common option among those who have a home ownership, is the fact that they use a mortgage loan to refinance other debts. That is, accumulate small debts in the short term in a single debt with a longer repayment term and a lower interest rate. That is to ask for a mortgage loan not to buy a flat but to remove other credits that we already have.
Even some people decided to ask for a loan to buy a house in the village and then fix it and sell it, or turn it into a rural house. In fact many rural houses were created not thanks to the mortgage loans but to regional grants and subsidies.
All that real estate madness caused the banks to grow thanks to the mortgage loans, that is to say the credits to buy houses with mortgage guarantee. But after a time where you could get financing to buy a house of even more than 100% of the value of the property, the crisis came.
And that caused many homeowners who had a fair income to see how monthly mortgage payments went up, because of the rise in ECB interest rates that triggered the Eureiko. What caused that they could not pay the monthly installments of the mortgage loans with variable interest rates.
Hence the great increase in evictions in Spain, with the social problems arising. Since many evictions, in addition to ending a family or elderly person in the street, ended with a debt. Because in Spain the dation is not automatic, so losing the house does not mean canceling the mortgage loan debt.
Steps to request a loan for home purchase
The so-called mortgage, or mortgage loan, is undoubtedly one of the most important decisions in the life of a person, couple, or family. That is why it is important to know the steps to buy houses successfully, since it involves very high expenses that can compromise our financial future.
- When it comes to getting the money to buy a flat or a house, we must take into account what is the real cost, taking into account linked products, what will be the real cost of the mortgage loan. And for this you have to buy all the supply of credits that there are in Spain, because there are many banks, companies, and financial institutions that offer loans to buy a house. Do not forget that buying a home implies very high expenses, both deeds and financial expenses as well as furniture derivatives or housing reform. Especially if it is a second-hand or new house that is not furnished or we want a change.
- Once we are clear about what the best mortgages in the market may be, according to our needs for money and personal situation (age, profession and type of contract, marital status, etc.). We have to evaluate if our ability to pay is sufficient to pay the monthly installments of the mortgage, ie pay interest and return the borrowed capital. And normally the simulation is that monthly fees must be at most 40% of monthly income. In addition, the bank or credit institution will also analyze our solvency based on whether we have defaults in delinquent records such as asnef. Because if we have any debt it will be more difficult to get the loan to buy the houses we dream of, or in the best case we will end up paying more interest and offering more extra guarantees such as personal guarantees. The ability to pay as well as the guarantees and guarantees of the loan to buy the house, must be sufficient even in the case of temporary unemployment or lowering of income. This will avoid being one of the thousands of evictions that occur in Spain.
- Once we have verified that it is viable to buy that home because we have enough savings as well as the possibility of getting the mortgage loan we need. We will have to carry out a real estate appraisal, carried out by a professional or independent company. The market value of the house is a key factor to check that the guarantee according to the amount of the mortgage is sufficient. Normally the appraised value of the property, or the purchase price of the house, must be at least 80% of the amount of the mortgage loan.
- Another important procedure to be able to buy a house or any property, is to consult in the Property Registry which are the charges and the property. Loads can be so much of previous mortgages, in which the new owner could be subrogated as much if it is a new work as a house of second hand. But it is also important to check other charges such as debts with the community or the real estate tax (IBI), or personal loans or debts with the Treasury and Social Security if we are self-employed entrepreneurs.
- When preparing the loan signature to buy houses, it is important to read the fine print of the contract before going to the writing firm before a Notary. Clauses such as the return period, the quota schedule based on the fixed or variable interest rate, differential plus the index that is usually the Eureiko, and the commissions (opening, study, total or partial cancellation, or subrogation) or linked products (life or fire insurance, etc.) to the granting of the mortgage loan.
- Once the deed has been prepared, your signature before a Notary and subsequent registration in the Land Registry will end the process of buying a house. With the signature, the purchase – sale is already made, between individuals if it is a used house or with the real estate promoter if it is new, but the registration in Public Publicity Registry. Because in case the owner does not pay the monthly installments, the mortgage will be executed. That is to say, the real estate guarantee for the collection of the capital and the interest fixed in the mortgage liability contained in the note of the Land Registry. Either by an extrajudicial execution or judicial prior eviction.
Steps to buy a house
Once we have seen what are the steps to apply for a mortgage loan, we will see the steps to buy a house in Spain. Because if we make a bad purchase of nothing, it will be useful to have searched among the best mortgages in the financial sector.
- The price may condition the amount of the loan to buy the house, so it is important to check that the floor is adapted to our personal and family needs, both present and in the near future.
- It is also important to check that the price of the home is commensurate with the surface, distribution, facilities, qualities of materials, age, and especially location and condition of the farm or house.
- Analyze if it is a good area, by means of transport, services, or green areas, will always be more valuable.
- In second-hand houses, it is necessary to see when they have been rehabilitated, in order to know if they are going to generate community spills in the future to face works and reforms in facades, roofs, or installation of an elevator.
- Other complements such as for example the storage rooms or garages attached to the house, which allow the value of the house to increase. By having more square meters available for storage or parking.
- Close the agreement of purchase – sale of the house to be able to later request the mortgage. And for this purpose, legal resources are usually used, such as the purchase option that allows you to buy the house within a specific timeframe and price. What allows us to have time to search and negotiate the mortgage loan we need to pay the price. But we can also resort to the contract of arras that is a kind of pre-contract in exchange for the payment of a small signal and that can allow both the buyer and seller to decide not to exercise the sale, although with a penalty. Although if we are sure to buy that house and we do not want the seller to sell it to another person, we must formalize a private or public sale contract formalized before a notary. Anyway, it is important not to rush and consult with a lawyer or formalize the operation before a notary.