Can you obtain a Spanish approval in principle
Spanish Banks like most lenders are able to provide a potential buyer with a loan approval subject then to valuation of a specific property.
Most Spanish Banks will provide this without a requirement for a property to be valued and Banks that will only fiscally approve an application if a valuation has been paid for and instructed should be avoided.
In most instances for a Spanish mortgage application to fiscally underwritten and signed off by someone in the risk team, a specific property is required and a Nota Simple must be sent with the application. This requirement is somewhat frustrating for potential borrowers as often a fiscal approval is wanted before any property search takes place. There are ways round this issue like providing a Nota Simple for any property and initially having the fiscal approval linked to it. This can then be changed when an actual property is found.
What type of facility for risk assessing a loan is offered in Spain
Banks in Spain tend to offer half way houses for fiscal approvals when there is no property. This will include either someone in the branch reviewing the file and giving it a viability undertaking or the application going through the Banks relevant scoring system to again provide a positive viability assessment. This viability check is not however a full approval and will not have been sent to the underwriters but will give a good indication of the expected success of a mortgage application once a property can be linked to it.
Branch level quotes
All Spanish Banks have a quoting system in Branch. These quoting systems can be misleading to clients as they can appear to be very similar to the financial approval quoting systems that UK Banks use. UK banks approval systems are more robust and whilst an AIP is not an offer and is not binding on the Bank never the less normally it is credit scored which is a big driver of risk approvals in the UK so holds more validity.
A quote given at branch level in Spain is of no consequence at all and holds no validity for the client to be sure that a mortgage will be approved. The Banks systems do not allow for any credit risk assessment without a fully packaged application so anything given at branch level is not worth the paper it is written on. Spanish Bank approvals at branch level are just an indication of what rates can be expected and what loan to value might be achievable on receipt of a full application. Any paperwork provided by the branch cannot be taken as an indication that a mortgage will be approved.
Full approvals
AIP or approvals in principle are only provided when a fully documented application is presented to and signed off by the risk team against the applicant’s fiscal situation.
In order to provide a substantial and meaningful, approval of lending in Spain the borrower will need to show, via official documentation, that they have sufficient means to meet the affordability ratios of the Bank.
Spanish lenders work off of net incomes and will in general look to see that the applicants outgoings on obligations as evidenced on their credit files do not exceed including the new Spanish loan payment more than 35% of net incomes.
Only incomes recorded on a tax return will be acceptable except for those applicants residing in non taxpaying jurisdictions.
Personal tax documents will need to be provided, although most Banks work off one years worth, and relevant supporting documents such as bank statements and pay slips where applicable will also need to be shown.
Credit checks
A present no Banks in Spain have the ability to credit search applicants directly in their country of residency so borrowers need to download and supply their own credit files. The credit file will need to be in full and to show not just current credits but historic ones and the payment history. Credit score which is so important in the UK and USA is of no consequence to the Spanish Banks they merely require the credit file to qualify officially what outgoings the applicants has.
How long do approvals last
Whilst it is necessary for a borrower to supply a full file for a mortgage approval to be given and this approval will only last for a few weeks it is worthwhile gaining as early on the buying process as possible. Having a fiscal approval, even if it is attached to a fictitious purchase, allows the buyer to understand fully what their maximum budget is and allows them to make an offer with the confidence that subject to valuation the lending is secured.
Once a valuation has taken place the formal offer normally lasts for 3 months but even if the approval or the offer expires it will only require a minor amount of updated documentation to re-instate the file.
Costs of gaining an loan approval
A good Spanish broker or lawyer will offer to put in place a financial approval for no cost or obligation only taking fees at full offer, which is at a point when the valuation has been instructed. Upfront fees are not necessary and Banks do not make any charge for fiscally approving mortgages either. It should therefore be possible to gain fiscal security without parting with any money until the buyer is ready to move on a property purchase.
Legally the loan is not binding either until the offer has been made or the mortgage deed is signed at completion of the purchase.