Read before buying
What you should know before buying property in Spain
If you decided to purchase a home in Spain, this useful information will guide you through the initial steps before buying a property and the advantages of doing so with the help of a reliable real estate agent. It is always recommended to sign public deeds before a notary. Here you will also find some basic but important tips on obtaining mortgages.
Buying a home is one of the most popular types of investments, so if you are thinking about buying a property, we at JaveaHomes will be happy to give a step by step explanation of this process. The most important rule - do not sign any documents without prior consultation properly, especially before handing over any funds, even as a deposit. Below are some aspects to consider:
Prior to signing the public deed of sale, a private contract between the buyer and seller is usually signed. A private contract is not mandatory nor entered in the Registry but the law considers it a valid document and in case of need you will have to comply with everything stated in it.
Therefore, if you are buying a property, it is important to be properly adviced before signing anything. Although the notary is not directly involved, they can help you clear your legal doubts.
The private contract should include some important issues:
· Who signs as the seller. When buying a newly built property from a developer, the administrator or the authorised agent of the company is required to sign the document. If it is a private sale, all owners must sign, i.e. if a property is owned by a married couple, both spouses should sign.
· Property Debt Status. It is essential to check whether the property is free of any encumbrances, if it has a mortgage, if it has embargos on it, or if there are any limitations in the statutes of the homeowners. You can apply for a Land Registry Title Extract (Nota Simple Informativa) directly at the Land Registry or simply ask for it through JaveaHomes. Sometimes you will have to ask for the Planning Legality Certificate at the local Townhall to make sure whether any other details not recorded in the Land Registry exist on the property.
· Homeowners Community Charges. Before buying make sure that all relating payments have been met, though in certain cases the law requires that the buyer take responsibility to pay them.
· Price. Agree clearly on the price and the payment method. Do not allow setting a number lower than the real price of the property, do not pay any amounts of money that are not documented. This is against the law and can be prosecuted.
· Deposit. When a private contract is signed a certain part of the full price is normally paid - a deposit (known as arras) - that is fully binding on both parties. The most common private contract is when you are allowed to withdraw from the deal before signing the public Title Deed. If the buyer cancels the agreement, they lose the amount paid as a deposit while if the contract is cancelled by the seller, they must return double the amount of the received deposit to the buyer.
"If we refer to a property under construcción, then the buyer is entitled to demand a guarantee for the amount paid, so in case of not handing over the property in the agreed period, the deposit can be returned to the buyer with the due interests".
· Sale Costs. If the parties do not specify anything about the costs or if the contract says "according to law", the law of the competent Autonomous Community will apply.
· However, the private document normally indicates the responsable party, meaning it is the buyer who pays all the sales related costs, except the Capital Gain Tax (Plusvalia) that correponds to the seller. If you buy from a developer, it is prohibited that the buyer pay the costs, by law they should be paid by the seller.
The Public Title Deed
The public deed is not required to buy or sell a property, except if you need to take out a mortgage. However, the vast majority of people choose to go to the notary to have it officially signed there for their fehaciencia and legal security.
· The public deed is irrefutable. The guarantors of the sale declare before a notary their willingness to buy and sell and accept the conditions of the sale. The notary, the public oficial, testifies the authenticity of these statements in writing so that neither party can deny to the other party the declared. The public deed is a preferred evidence in the court.
· The deed provides legal security. The notaries are not limited only to testify. Their profesional activity provides legal security by checking and verifying that the issues addressed in the private document conform to the law.
· At the signing of the deed, the notary:
· Checks the identity, capacity and legitimacy of the seller and the buyer
· Exposes the state of the burdens on the property
· Confirms the payment of the community fees
· Requests the proof of payment of property tax (IBI) and the cadastral reference of the property to check their correspondence with the Title Deed of the seller, warn the parties of discrepancies and change the ownership on the new property tax bills
· Notifies the parties of their legal obligations and especially of the fiscal duties derived from the sale
· Explains transaction costs sharing between the parties
· Organises, if the parties so request, the payment of the various costs related to the public Title Deed
After signing the Deed
Once the deed is signed, these are the steps to follow:
· Taxes payment and Title inscription in the Property Register. If you are planning to deal with this personally, refer to JaveaHomes or the notary to find out about the deadlines to avoid penalties or a loss of rights. You can also choose to have them handled by the notary who will dispatch a certified electronic copy of the deed to the Land Registry to have it registered there. Later, you will be given an authorized official paper copy of your deeds with all relating documentation and invoices.
· Utilities. Do not forget to set up utility contracts of the new property in your name; in case of buying through us in JaveaHomes we will take care of making these changes at no additional cost.
· Documentation and invoices. Keep all documents, receipts, warranties and original invoices relating to the purchase.
Do not accept global receipts; claim original invoices from the notary, Administrative Departments (gestor) and Land Registry, as well as for the tax payments letter.
Sales relating costs
Notary Invoice: This is the bill for the notary fees fixed by the Government. The tariffs are the same for all notaries.
Registration Invoice: This is the bill from the Property Registrar for inscription of your deeds; the tariffs are also fixed by the Government and are identical for all Registries.
Administrative Department Invoice (Gestoría): This is the invoice from the Administrative Department in case it is involved. You are also entitled to deal with the documentation yourself or solicit the notary to do it.
Municipal Tax on the Increase in Value of Urban Land:
Also known as Capital Gain Tax (Plusvalia). By law it is paid by the seller; the information on the tax amount can be received at the Townhall the property is registered under.
VAT: On newly built dwellings you will have to pay 10 % VAT on the purchase price. On the other types of properties the VAT is 21%.
Stamp Duty (AJD): If this is a new build, the Stamp Duty Tax (AJD) must be paid, which ranges depending on the regions from 1% to 1.5%.
Property Transfer Tax (ITP): If the property is second hand, the Property Transfer Tax (ITP) has to be paid, the amount of which at the moment is 10%.
Quite a big part of buyers prefer to get a mortgage to purchase a house. Please remember that the buyer has the right to choose the notary.
Before applying for a mortgage it is necesary:
1. Determine the amount to borrow. Knowing the purchase price you will also have to take into account the above mentioned costs and the mortgage costs, such as the property survey, the set-up mortgage fee (if applicable), taxes etc.
2. It is advised that the monthly fees do not exceed 35% of the income of all mortgage applicants, it must be taken into account that the income may change over the years and mortgage variable interest rates may rise.
3. Get competitive quotes from different Banks and study the general information in their informative leaflets (Precontractual Information Sheets), which are handed out free of charge to anyone intrested. It is important to pay attention to TAE, which is the annual interest rate which is paid in one year, and includes fees charged by the lending bank and the terms of payment.
4. Analyze Personalized Information Sheet. After selecting the lending bank, and before committing to it, you will be given a Personalized Information Sheet, which will cost you nothing, detailing financial conditions of the mortgage offer.
5. Ask for a binding offer. Once applied for a mortgage and the property survey is done, it will be very useful to ask the bank for a binding offer with all the financial terms of the contract. The binding offer will have a validation of not less than fourteen days from the date of its issue. If this document is requested at the same time as the Personalized Information Sheet and correspond to its content, both can be delivered in a single document.
· Once the binding offer is accepted, the bank will send the documents to the notary chosen by the buyer to have the purchase deed and the mortgage deed prepared.
· It is important to remember that the buyer has got three working days before signing of the deeds to thoroughly examine them with the advice of the notary and request clarifications and changes to the bank if necessary.
· After the signing, the notary sends a certified electronic copy of the title deed and the mortgage to the Property Register.
Interests and clauses
Interest is a fee paid for the mortgage. It is the result of applying the percentage of the principal that is paid as a fee over a certain period of time. The interest rate may be fixed or variable. If it is fixed – which is rare – it is usually higher than variable. The advantage is that you always know what you pay because it will not be affected by the possible declines or increases in reference rates over the duration of the loan.
However, the majority of people opt for a variable interest rate referred to an index (which is usually the Euribor), to which adds up the differential which is the minimum interest rate applicable to the loan if the agreed reference rate drops to a zero.
Clauses: Being important the reference rate and the differential are included in the contracts of some banks, which limit the variation of the interest rate applicable to the mortgage.
· verify if the limits on the interest rate variation have been established, specify this in the deed, and explain to you the impacts clearly and in details.
· inform you of any relevant increase that could happen in your payments, and of impacts of waiting periods, if there are any, in the payments amount.
· verify that non-financial clauses contained in the deed do not involve commissions or fees that should be included in the financial clauses.
Costs prior to application / analysis of a mortgage
Normally the lending bank where you have applied for the mortgage asks an independent firm to survey the property, which will perform a survey based on the size of the object, cost of similar properties in the area etc. The cost of this service varies from 300€ to 500€. This payment doesn´t guarantee that you will get your mortgage but the financing cannot be considered without it.
Costs after the acceptance of mortgage application
Notary Costs: This is the bill for the notary fees fixed by the Government. The tariffs are the same for all notaries.
Registration Costs: This is the bill from the Property Registrar for inscription of your deeds; the tariffs are also fixed by the Government and are identical for all Registries.
Administrative Costs (Gestoría): This is the invoice from the Administrative Department (gestor) if they are involved. You are also entitled to deal with the documentation yourself or request that the notary do it.
Stamp Duty (AJD): If this is a new apartment or a house, the Stamp Duty Tax (AJD) must be paid, the type of which ranges depending on the regions of 1.5% of the mortgage amount.
Insurance: It is mandatory to get an insurance. Average cost: 300 €
And finally: after the mortgage is paid off, there is one more step:
the deed of mortgage cancellation. This is signed only by the bank representatives on request of the debtor, who has the right to choose the notary to authorize the deed and to advise on his/her charges. Once signed, the deed is entered in the Land Registry, being at this moment oficially cancelled .
And remember ...
Do not sign anything you do not understand or if you are not fully convinced about.
Do not accept global receipts, do not pay in cash, claim the original invoices. When in doubt, you can always ask us in JaveaHomes. We will be pleased to help you.
We at JaveaHomes hope that you find this information interesting and that it will help you in your final decision to buy a home with us so we can make your dreams come true.