Guide to buying a property in Spain – The safest way
Thinking of buying a house in Spain?
If you’ve decided to buy a property in Spain (house, flat, villa, apartment, land…), it is completely normal that doubts and questions arise. This is why, before paying a deposit or signing any documents, we advise you to find a lawyer with expertise in real estate law and one who specialises in buying and selling properties.
The lawyer will inform you about each and every step you must take to purchase a property with the maximum guarantees and no risks, will guide you from beginning to end and will clear any doubts that may arise during the process.
The steps to be followed in the purchase of a property are divided into phases:
1. What you should know before buying a spanish property
The first decision is of course the choice of property, a property that best suits your needs and budget. Therefore, it is a decision that should be made with peace of mind and evaluating the multiple aspects connected. Our recommendation is to always choose a reliable real estate agency for the purchase of a property.
Once you have chosen the property, the purchase process can begin. The first step is to sign a document called the reservation agreement, this is a regular process when there is a real estate agency acting as an intermediary.
The reservation document or contract
The reservation contract of a property is preliminary to a purchase, where the buyer pays a certain amount (usually small) to the real estate agency to cover two objectives:
- To reserve the right to buy the property for the future buyer
- Establish the basis and agreement without the parties being present.
The reservation contract is widely used by many real estate agencies to try to reach an agreement without the parties being present. The reservation is an amount, which is paid as a deposit to the real estate agency to reserve the right to buy the property chosen. The amount that is usually paid is between 3.000 and 5.000 euros depending on the value of the property.
The reservation can be made for the price offered, in which case the property is reserved exclusively until the signing of the private purchase agreement, together with a deposit.
The reservation goes towards the forward’s final price, and in the event that the future purchaser was to back out, he would lose the amount paid – unless otherwise agreed – by way of compensation for damages.
The reservation can also be made with a price offer or challenge the conditions, and in this case the real estate agency negotiates during the agreed period, in such a way that if an agreement is reached, the reservation becomes firm and on account of the final price, otherwise, the amount will be returned in full to the buying party, without having anything else to claim from either parties.
This is beneficial for all parties, since the buyer ensures the exclusive reservation of the chosen property until the end of the negotiations, and the seller knows that they are negotiating with someone who is committed and has a real interest.
It is important that these conditions are very clear in the reservation document that you sign with the real estate agency, and if you have the slightest of doubts, ask for all the necessary clarifications and get help from your lawyer.
Do you want to buy but revoke the purchase agreement in the case that your mortgage isn’t approved?
We advise for you to sign a reservation document subject to a resolutory condition in the event of not obtaining the required financing for the purchase of the property, agreeing or not to compensation in favour of the seller or agency.
2. Private purchase agreement
Prior to formalising the sale before a Notary by means of a public deed, it is normal to conclude a private purchase agreement between the parties. This private document commits the contracting parties to comply with their obligations. It is important to properly assess the draft contract where the obligations are set, and clauses requested by either of the parties are included.
It is common to have previously signed a reservation agreement or even a deposit agreement, which already contains some of the conditions under which the purchase will take place.
However, prior to signing the private purchase agreement, it is advisable to find out in advance the following information:
If you have any doubts about what a private purchase agreement is, take a look at this video where we explain it in depth.
A deposit is a sum of money which the buyer pays the seller to hold the property. The most common is the “down payment”: money paid upon signing the private purchase agreement and which is part of the full price.
The reservation deposit is also very common, this means that:
- if the agreement is broken by the buyer, they will lose the money delivered on account of the price (deposit) and
- if the agreement is broken by the seller, the seller must return double the agreed amount.
Essential points of a purchase agreement
Fundamental elements to be included in a private purchase agreement:
3. Public deed of purchase
The public deed provides legal certainty to the purchase of a property, in addition to witnessing all the conditions agreed, checking the aspects included in the private purchase agreement.
Before and at the time of signing the public deed of purchase, your lawyer must check the following to inform the notary:
4. Taking out a mortage
Mortgages are the bank’s key tool for the purchase of a property. The bank offers you a sum of money at a relatively low interest rate in exchange for you mortgaging the property you buy.
This means that if you are unable to pay, after meeting a number of conditions set by law, the bank may sell the property at public auction. Please bear in mind that unless agreed in the public deed, handing over the property to the bank will not get you out of the debt if it is bigger than that obtained from the sale; for this reason, the compulsory valuation incorporated in the deed is very important, as it determines the market value of the property.
How to get the best mortage for you?
First of all, do your research. Banks and lawyers specialised in banking and consumer law will be able to advise you.
Given the significant economic outlay involved in buying a property, most citizens tend to apply for financing. Let’s pretend that you are in this situation, then one question automatically comes to your mind: Which product to choose? Banks offer their clients different products, but it is advisable to differentiate between them in order to decide on the best one for you.
Keypoints of a mortage
Analyse the European Standardised Information Sheet (FEIN by Spanish abbreviation). This document, which must be given to you by the bank contains all the information on the mortgage. The form is a binding offer for a minimum of 10 days. You must also be provided with the Standardised Warning Sheet (FiAE) detailing the clauses and expenses of the mortgage.
What information is included in the FEIN?
Once you have decided with which bank you are going to take out the mortgage that best suits your interests, we enter the so-called pre-contractual phase of the loan as set out in the law regulating real estate credit contracts, which has been in force since 16 June 2019.
Choose your notary
After having chosen the bank and the mortgage most suited to you, you will have a period of ten days, prior to the authorisation and signing of the public deed of your loan, to visit the notary of your choice.
It is important that your lawyer informs you of all the relevant aspects of the loan, and with your authorisation by means of a power of attorney the lawyer get in touch with the notary to verify all the information on the mortgage that you are taking out.
After these ten days, and the notarial act having been drawn up and signed by you and if applicable by your guarantor, the contractual phase begins, with the authorisation of the purchase and the mortgage deed, which are usually signed simultaneously.
This is the last moment to clarify any doubts you may have, as once the deeds have been authorised by the notary, there is no going back.
On the day of the signing, the seller, the representatives of the bank and you as the buyer and the borrower meet at the notary. The authorisation and signing of the public deed of purchase and mortgage usually takes place at the same time.
And if you’re thinking of applying for credit in Spain, here’s a video with some tips on how to save money.
5. Subsequent Formalities
Expenses arising from purchasing a property without a mortgage
Ask your lawyer for information on the verification of values by the administration and how they are applied in your community, in order to comply with your tax obligations.
Expenses arising from purchasing a property without a mortgage
The real estate credit law has brought about important changes in the distribution of these costs between you and the bank, meaning from now on, the bank assumes most costs.
The bank pays:
1. Valuation of the property
This is one of those expenses that you have to face on a compulsory basis, whether or not you are granted the mortgage. This will be carried out independently by an appraisal company or professional that you choose. Some banks may take care of it voluntarily.
Also to be taken into account:
2. Registration of the Title Deed
Although the registration of the purchase is voluntary, as the bank requires the mortgage deed to be registered in the property registry, the purchase deed will also be registered prior to the mortgage.
The notary, on the same day of the granting, will electronically send a copy of the purchase deed as well as the mortgage deed to the property registry. This ensures that you will not be affected by any subsequent problems from the seller (previous owner), for example an embargo or a claim.
In the following days, it will be necessary to settle the taxes within the legal period.