How to finance the purchase of a property in Spain

If you want to buy a property, one of the most important aspects is the economic question, because the amount is usually important.

Knowing how to finance the purchase of a home is essential when making a decision.

Cash payment

Although it would be desirable for most people, the reality is that few home buyers can afford the payment with their own resources.

This option is the best if we talk about financial costs, since it does not imply the payment of interest or commissions.

However, it may mean shelling out all the cash, which can leave the buyer in a difficult situation if they have to deal with other expenses.

A good idea would be to pay part of the price and resort to some other form of financing for the remaining amount. Thus, financial expenses are reduced but the buyer would retain part of his savings.

Mortgage loan

Applying for a mortgage is the most common way to get the money necessary to purchase a property.

A mortgage is a financial product through which a bank lends money to a person to purchase a property in exchange for interest. The return of the total amount is guaranteed with the property, so if payments are not met, the owner must hand over the home to the financial institution.

There are different types of mortgages:

At a fixed rate. A percentage is established by contract that the buyer will pay throughout the life of the mortgage contract.
At variable rate. A reference indicator is set, the most common is the Euribor, and a percentage on that indicator. Thus, the quota will vary according to the fluctuations of the reference indicator.
Mixed. The contract establishes a period with the payment of interest at a fixed rate and the rest will be variable.

Financial institutions only offer up to 80% of the value of the house. Therefore, even if you choose to apply for a mortgage, it will be necessary to combine this type of financing with another, such as the savings necessary to cover the remaining 80%.

Home loans

The home loan option is similar to personal loans.

They can be very useful when you want to buy a home but you don’t have enough money to do so. Also to renovate a home or pay rent and deposits.

By signing a home loan with a financial institution, a line of credit is made available to you to be able to use a sum of money to finance the purchase or rental of a home.

Real estate crowdfunding

It is a form of alternative financing that works through small contributions from different people or companies. That is, the person who needs financing puts a project on a website and those who are interested contribute the amount they can.

Usually, projects have a money goal established, which must be covered by a deadline.

If the established amount is covered by the date, the sponsors must contribute the money. On the other hand, if it is not reached, the sponsors will not have to contribute the money.

In this way, each of those who contribute money to purchase the property will acquire a part of it. Crowdfunding is normally done with the intention of using it as an investment.

Rentals with purchase options

There is an option for people who cannot buy a home, usually because they do not have enough money to do so, and do not want to feel like they are wasting their money paying rent monthly.

This option is rent with option to buy. With this type of financing, the monthly amount paid is totally or partially discounted from the total agreed purchase price. A maximum period is agreed upon to formalize the purchase and, if not, the money paid is lost throughout the period.

For the homeowner, it is not a bad option, since they receive monthly money with which to pay the possible mortgage on the home and, subsequently, the rest of the money.

For the buyer it may be a good idea, since the money spent monthly is deducted from the total amount. In addition, a lower amount is usually agreed upon than would be usual for the property.

Family financing

This option consists of requesting the amount necessary to purchase the home from a family member or friend.

It is similar to applying for a loan, but agreeing on the repayment conditions with a family member instead of with a bank.

It is advisable to sign a contract with a payment deadline or specific duration. This prevents any of the parties from failing to comply, forcing both to comply with their part of the agreement. When it comes to knowing how to finance the purchase of a home, the most common options are cash payment, mortgage, home loan, crowdfunding, rent with option to buy or family financing. All of them have their advantages and disadvantages.

Further information

This article is part of our service Real Estate Lawyer in Spain. Visit this section where you will find all the useful information on this topic, including a complete guide on How to buy a house in Spain.

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