Guide to buying a property with a mortgage on Lanzarote

Deciding to purchase a property is no small feat, especially when you need to secure financing. If you’re considering a mortgage to buy your dream home, it’s essential to follow a clear process to ensure you’re making well-informed decisions. Here’s a straightforward guide by Lanzarote Agents to help you navigate the process, with some insider tips along the way.

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1. What Homes Can You Afford?

Before diving into the property market, it’s wise to have a clear understanding of your budget. The first step should always be to approach your bank for a pre-mortgage assessment. This will give you a precise idea of the amount you can borrow, allowing you to focus your search on properties that suit both your financial capacity and personal needs.

2. Contact a Bank or Mortgage Broker

Once you’ve found the property you’re interested in, it’s time to gather all the relevant documents, such as the property’s current condition and the simple note (nota simple). Understanding the current mortgage market conditions is crucial before proceeding further.

3. Submit Required Documents to the Bank

Before applying for your mortgage, you must carefully assess your financial situation. Consider your ability to meet monthly payments, the repayment term, and leave room for unexpected costs. Ideally, your debt-to-income ratio should not exceed 30-35% of your net income.

4. Compare Different Mortgage Offers

The key to making an informed choice is to compare. By reviewing various mortgage offers from different lenders, you’ll be able to identify the best deal for your needs. There are three main types of mortgages to consider:

Fixed-rate: The interest rate and monthly payment remain the same throughout the life of the mortgage. Even if market rates rise or fall, your payments will stay consistent.
Variable-rate: The interest rate is linked to a reference index (typically the Euribor), meaning your monthly payments will fluctuate as interest rates change.
Mixed-rate: You’ll pay a fixed interest rate for the first few years, after which the rate will switch to a variable one.

Additionally, it’s important to assess any associated fees. Some of the most common commissions include:

Opening commission: This is a one-time fee calculated as a percentage of the mortgage loan, paid at the beginning to cover the bank’s administrative costs.
Mortgage account fee: Some lenders require you to open a specific account to manage your mortgage payments, and this may come with its own fees.
Early repayment penalty: If you choose to pay off your mortgage earlier than scheduled, you may be charged a fee to cover the bank’s potential financial loss.

5. Property Valuation

Before moving forward with your mortgage, remember that the bank will lend you a percentage of the lower of the following two amounts:

The appraised value of the property.
The agreed purchase price.

Tip: Don’t commit to paying a deposit until you’re confident that the appraised value aligns with the purchase price.

6. Sign the Reservation and Await the Valuation

Once the property has been reserved via a contract and the valuation confirms everything is in order, you’ll receive the binding offer or FEIN (Oferta Vinculante). This must be signed at the notary of your choice.

7. Review the Notarial Act and Finalise Your Mortgage

Within 10 days of signing the FEIN, you’ll proceed to sign the notarial deed of the property sale and the mortgage deed at the same notary. Be sure to thoroughly review all documents before signing.

Common Requirements for Applying for a Mortgage

When applying for a mortgage, your financial stability plays a key role. While requirements vary, here are the basics:

Stable Income: Lenders will require proof of stable income, such as pay slips and a work history report, to ensure you can reliably meet the mortgage payments.
Good Creditworthiness: A clean financial history, free of outstanding debts, is essential for securing a mortgage.
Financing Limit: Most lenders will finance up to 80% of the property’s value.
Repayment Term: The repayment period typically ranges from 20 to 30 years, depending on the lender.

By following these steps, you’ll be well-equipped to navigate the mortgage process and secure the best deal for your new home.

Looking to buy a home in the sun? Check out Lanzarote Agents’ large collection of properties for sale: https://lanzaroteagents.com/