Buy a house in Spain in 2020
If you are looking to buy a house in Spain as a foreigner, you will need to sort out some bureaucracy before being able to buy a property.
The Spanish property market has many quirks, and it pays to do your research before buying a home in Spain. Knowing what to expect when buying property in Spain can help avoid any pitfalls of setting up your life abroad. Factors to be aware of when buying Spanish property include property scams, high capital gains tax, and fluctuations in the Spanish real estate market.
The steps to follow when buying a house are not always intuitive. In addition, it is necessary to have clear which taxes and expenses we will have to pay to acquire the house.
Whether you are looking for a property in coastal areas or in a large city like Madrid or Barcelona, this guide is for you.
Looking for advice when buying a property? contact us!
What do you need to buy a house in Spain?
The only thing you need, in legal terms, is the NIE (Número de Identificación del extranjero). This number, which is unique to each individual, is essential to carry out any transaction in Spain. Since it must appear on all documents that you sign or are issued in Spain, you must have it before signing the deed. The NIE is not complicated to obtain, but it does take a long time; ask your real estate agent to make it easier for you to obtain the NIE in order to speed up the process as much as possible.
In addition, although it is not compulsory, having a bank account in Spain will make all the formalities easier, as it will make payments faster and will probably save you some commissions.
Finally, remember that once you are the owner of a property in Spain, you must appoint a tax representative if you are not resident in Spain.
How to buy a home in Spain step by step.
Although each buying process differs significantly, in general, the phases found in any real estate operation would consist of the following:
- Tax and Budget Planning: The costs of acquiring a house are mainly paid by the buyer, and vary from region to region. Taxes and other paid by the buyer include:
- Property transfer tax 6–10% (existing properties) / VAT (or IVA) at 10% (new properties);
- Notary costs, title deed tax and land registration fee 1–2.5%;
- Legal fees 1–2% (including VAT).
- Get your NIE: Contact the Spanish administration to get your tax identification number. You don’t need a bank account to buy a house, but we advise you to get one before buying the house.
- Search for properties in Spain. Our lawyers can help finding properties in Spain.
- Reservation agreement and letter of Intent. A letter of intent may be presented by one party to another party and subsequently negotiated before execution (or signature).
- Payment of the Property Transfer Tax or VAT, as applicable and update the Land Registry.
FAQs when buying a property as a foreigner.
Are foreigners allowed to buy property in Spain?
Of course! There are no restrictions on buying property in Spain, whether it’s commercial, residential or land. In fact, Spain encourages investment by foreigners, both resident and non-resident. Remember that if you buy a house worth more than €500.000 you can apply for a Golden Visa.
What are the taxes I need to pay when buying a house?
All property owners in Spain are required to pay three different taxes each year. If you are a resident, you are subject to Income Tax (including Capital Gains Tax) and Real Estate Tax (IBI).
If you are a non-resident in Spain, you are subject to Income Tax (including Capital Gains Tax), Property Tax, plus an additional Non-resident Property Tax. Here you can find more info about property taxes.
Can I get citizenship if a buy a property?
Sure! Spain encourages new home buyers by offering its Golden Visa residency program. Learn more about that here!
Do I have to pay the downpayment directly to the seller?
Yes, that is usual in Spain. Unlike in most western countries where the down payment is paid to an escrow agent (closed account, trustee, Notary, etc.) instead of to the seller, the local practice in Spain tends to surprise foreign buyers.
Any risk can be reduced to very little with some basic reviews, for example, making sure that the time between the payment of any deposit and the final sales deed is not excessively long, making sure the seller is not a company on the verge of bankruptcy, and confirming that the outstanding amount of the mortgage does not equal the purchase price (in which case the down-payment cannot be paid to the seller because the whole purchase price has to be paid to the bank). With the right due diligence, it is acceptable in Spain to do as the Spaniards do – pay the down payment directly to the seller at the time of signing the down payment agreement.
FUNDING THE PURCHASE: DEPOSITS AND MORTGAGES
In general, non-resident buyers in Spain can enjoy the same mortgage conditions as Spaniards, i.e. up to 80% cover in the case of a first home, and between 60 and 70% in the case of a second home.
This means that you must have a minimum of 20% of the price of the available property, plus approximately 15% extra on the cost of the property to pay taxes, lawyer’s fees, notary fees, etc. In addition, your debt cannot exceed 30-35% of your income.
Other important information to bear in mind is that mortgages in Spain are normally taken out for a minimum of five years and a maximum of thirty, with the maximum age of 75 years for completing the mortgage. It should also be noted that each institution has its own risk criteria, in which the country of residence can be included, and that properties abroad are not usually accepted as collateral, as it is difficult to reach them.
You can read more about getting a mortgage in Spain in this article.
Property lawyers in Spain
If you are going to buy a property and want to save yourself future problems, it is advisable to seek advice from a property lawyer in Spain. The savings far exceed the cost of legal fees.
Buying your home is usually the largest investment for most individuals. Even those who own several properties tend to invest cautiously in the real estate market. Real estate companies always use the services of lawyers before making an investment.
In short, the services of a lawyer are often more useful for preventive than corrective purposes. But most people still hire them when it’s too late.
The effort to find a good advisor can save you a lot of trouble.
How a lawyer can help when buying a house
Before entering into the purchase of a property, basic tasks of research and analysis must be carried out. It is important to check that the property is in order and that the contracts of purchase and sale and, where appropriate, mortgage loan, will not end up causing problems.
In addition, tax burdens represent a significant percentage of the operation. Together with the associated costs, they can increase the sale price by up to 20%. It is therefore a good idea to know this extra before you get a fright.
If you are buying a property in Spain and need legal advice, you can contact with our real estate lawyers. Contact us!
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