Costs associated with buying a home
In addition to the agreed sale price, the mandatory expenses derived from the purchase of a property must be considered. In general, an additional percentage of 10% can be estimated for the purchase of second-hand homes without any additional financing. Here we detail the expenses involved in the sale of a home:
- ITP: The Tax on Patrimonial Transfers must be paid before 30 days from the date of the signing of the sale. Depending on the province, it varies up to 10% of the purchase value and affects the sale of second-hand homes.
- VAT: It is the Value Added Tax and affects all new homes. In the Canary Islands, this tax is the IGIC and in Ceuta and Melilla it is the IPSI.
- IAJD: Tax on Documented Legal Acts is variable from 0.5% depending on the autonomous community.
- Notary and Land Registry Fees: The fees of notaries and registrars are fixed by tariffs approved by the Spanish government and depend on the property and region.
- Conveyancing and/or Legal Fees: Handling of procedures such as the registration in the Property Registry and the liquidation of taxes. Depending on each agency, the cost of the processing may vary so you can request a detailed summary of these in advance. All taxes are paid on the fixed sale price of the deed of sale.
- Capital gains Tax: Tax on the Increase in the Value of Land (capital gain). This tax is accrued at the time of sale and as a general rule affects the seller of the home, although it may vary depending on the community, the municipality, as well as whether or not the owner is a resident.
- Mortgage costs. In the case of financing the purchase of your home, there are expenses that may vary depending on the financial institution and the conditions of the mortgage loan. Here we detail the most common expenses.
- Opening commission. It is a percentage of the amount of the loan, which is paid at the time of its constitution.
- Early cancellation commission: It is a percentage of the capital that is repaid early that will be paid only at the time of making the early repayment, in whole or in part. According to what was agreed with the financial institution and current regulations, it could be from 0.50 to 1%.
- Property valuation: For a determination of the current market value of the home you want to buy and the study of the conditions of the loan by the financial institution, you need to carry out a home appraisal that will be commissioned by the same bank or by an independent company. Its cost depends somewhat on the type of home and its characteristics and is usually between 200 Euros and 400 Euros. The amount of the loan does not usually exceed 80% of the appraisal value or the purchase value (depending on the entity) in the case of habitual residence and 70%. This expense must be paid before the mortgage is formalized.
- Formalization: The mortgage loan must also be formalized in a Public Deed and registered in the Property Registry together with the formalization of the sale in most cases.
- IAJD: The Tax on Documented Legal Acts is calculated on the amount that constitutes the amount of mortgage liability against third parties. This amount includes the amount requested, plus a percentage for interest, costs and expenses in the event of not complying with the loan instalments and the entity having to sell the mortgaged property to compensate itself. The mortgage liability figure on which the IAJD is calculated is usually around 150% of the amount of the loan, depending on the entity that grants it.
Extraordinary and post-purchase expenses:
- Utility contracts: The norm for second-hand homes, is that current contracts are transferred, so you only have to notify a change of ownership to be able to continue with the same conditions. However, there are cases in which a new contract must be carried out, which is usually more expensive than the change of ownership.
- Insurance: Some banks require the contracting of mainland fire insurance, which guarantees the value of the mortgaged asset during the life of the loan. This is recommended even without having financing, especially when dealing with 2nd residence homes, or rental homes. It is also advisable to take out life insurance that covers the amounts pending amortization, so that if the buyers die, the heirs do not have charges with the house.
- Property tax, known as IBI: It is a municipal rate that taxes the property annually and is based on the assigned cadastral value. Generally, the type of tax applied depends on the number of inhabitants of the municipality in which the home or property is located.
- Community fees: According to the Horizontal Property Law, the contribution of common expenses is made based on the participation fee of each property, although it also depends on the number of neighbours and the services contracted by the community and is accrued annually.