Lately, many friends on the forum have been discussing buying a house, and the biggest concern seems to be money, especially how much to save for a down payment. Many have heard that saving 20% of the property price is enough. As someone who has just gone through the process, I have to say, that’s a very naive assumption! If you only prepare 20% for your mortgage interest rates, you might find yourself with a significant financial shortfall, which can be quite awkward. Today, let’s talk about how much ‘initial capital’ you really need to buy a home in Spain.
When the bank says they’ll finance 80%, they mean the maximum loan amount is 80% of the lower value between the ‘purchase price’ and the ’bank’s appraisal value’. For example, if you find a house for sale at €250,000, but the bank appraises it at only €240,000, the bank will only lend you a maximum of 80% of €240,000, which is €192,000. This means your down payment would need to be €250,000 - €192,000 = €58,000, which is already more than 20% of the purchase price. Therefore, counting on the bank to finance 100% of your purchase price is risky.
Don’t Forget: There Are Other Costs Besides the Property Price!
This is the most crucial part! In addition to the down payment, the home-buying process involves taxes and fees that amount to an extra 10%-15% of the total price. The bank will not finance these costs; you must pay them out of pocket. These mainly include:
- Property Transfer Tax: For resale homes, this is the ITP (Impuesto sobre Transmisiones Patrimoniales), with rates varying between 6% and 10% depending on the autonomous community. For new homes, it’s the VAT (IVA in Spanish), fixed at 10%.
- Other Expenses: These include notary fees, property registration fees, administrative fees (gestoría), and possible bank setup fees, which together add up to another 2%-3%.
So, a safer calculation is: Initial Capital = 20% of the property price + 10%-15% of the property price. This means you should aim to have 30% to 35% of the total property price in cash to be safe. Additionally, your residency status will directly affect the loan-to-value ratio. I’ve created a simple table to make it easier to understand.
| Residency Status | Typical Maximum LTV Ratio | Recommended Down Payment + Fees |
|---|
| Spanish Tax Resident | 80% | 30% - 35% of property price |
| Non-Tax Resident | 60% - 70% | 40% - 50% of property price |
Let’s Do the Math with an Example
Let’s take the example of a tax resident buying a €200,000 resale property in Madrid:
- Down Payment: €200,000 * 20% = €40,000
- Taxes & Fees: €200,000 * 8% = €16,000
- Total Initial Capital: €40,000 + €16,000 = €56,000
See? For a €200,000 house, you need €56,000 in initial capital, which is 28% of the property price. If your situation is more complex—for instance, if the bank’s appraisal is lower than the purchase price, or if you’re a non-resident—you’ll need to prepare even more for the buying costs. In summary, don’t just focus on saving 20% for the down payment; including all the miscellaneous taxes and fees is the only way to be fully prepared. I hope my experience helps everyone. Wishing you all a swift journey to being broke—wait, I mean, wishing you all the best in finding your dream home soon!
