Buying a home requires some planning and foresight. The process leading up to receiving the keys and moving into the home involves quite a few formalities, and most of them come at a cost to the buyer. And while it’s always possible to hire an agency to handle practically everything, it’s a good idea to understand each of these steps so that nothing catches you off guard when the time comes.

But don’t worry—if you’ve come this far to find out exactly what the costs are when buying a home, you’ve come to the right place. At CULMIA, we’ve compiled this information so you can get your finances in order right from the start. So we can’t wait for you to join us!

Expenses Related to the Purchase or Sale of a Home

Notary

In order for the sale to be processed legally and properly finalized, a notary public must be involved in the process. This is a service that, naturally, incurs a fee, which is estimated to ranges from 0.2 to 0.5 percent of the total price of the transaction.

It is important to note that if a bank is involved in the transaction by providing a mortgage, this expense will be borne by the bank.

In addition, the cost of the deed —which is the buyer’s responsibility—must be added to the aforementioned amount. This cost covers the first copy of the deed and any subsequent copies issued after the sale, such as those required for obtaining a mortgage.

Land Registry

In Spain, it is mandatory to register the property in your name with the Property Registry if you need a mortgage to pay for it. Otherwise, while it is not a legal requirement, it is still advisable to do so. Mainly because this process publicly records your ownership, personal information, rights, and encumbrances—which is important for you to be legally recognized as the rightful owners.

The process includes the issuance of a simple title abstract and must be carried out at the Land Registry office where the home we are purchasing is located. The cost depends on three factors: the value assigned to the property in the deed, its characteristics, and its location. However, it’s worth noting that these fees are typically between 0.1% and 0.25% of the home’s total price, always ranging from 24.04 euros to 2,181.67 euros.

In this case, just as with the notary, the fees must be paid by the bank if the sale is carried out through a mortgage contract. The only exception is the property abstract.

Taxes

Depending on whether the home we are buying is new construction or pre-owned, we will have to pay different types of taxes associated with the sale.

VAT

If it is a new home, the first tax you must pay is VAT. It is 10% of the home’s value.

IAJD

The Stamp Tax (IAJD) is levied on all transactions formalized in public deeds, such as sales and mortgages. The tax on mortgages is calculated based on the mortgage loan amount and the general rate set by each Autonomous Community, and can range from 0.5% to 1.5% of the total cost of the transaction.

Currently, in the case of a newly constructed home, the buyer is responsible for paying the IAJD tax associated with the property’s deed of conveyance. Otherwise, the lender (bank) must pay the tax.

ITP

The Property Transfer Tax (ITP) applies to the sale of used or second-hand homes. The amount is calculated based on the rate applied by each Autonomous Community to the registered sale price, with the minimum rate being 4% (Basque Country) and the maximum rate being 10% (Catalonia, the Valencian Community, and Galicia).

Payment by check or OMF transfer

To complete the payment for the home to the seller, we need to decide in advance how we will make the payment. We can make a fast transfer to the seller’s account (OMF) through the Bank of Spain or issue a personal check. In both cases, the transaction will incur a fee, which will be specified by the bank.

Real Estate Agency Fees

In most situations where it acts as an intermediary, the real estate agency’s fees are paid by the seller. However , it is advisable to clarify this point before finalizing the purchase, so that the buyer is fully aware of the situation and does not have to face this expense at the last minute and unexpectedly.

Gestoría

If a mortgage is signed to finalize the transaction, it will be mandatory to also hire an administrative agency to handle the paperwork, such as registration with the Land Registry. Otherwise, this service is not required for the buyer, although it is recommended. Doing so will simplify all the paperwork and speed up the process.

Naturally, every administrative agency has its own rates for this type of service, but 300 euros is a reasonable figure to give us an idea of how much it typically costs to hire someone for this work. It should be noted, however, that in the case of mortgage transactions, the bank will also cover the cost.

Expenses Associated with Taking Out a Mortgage

Home

Banks do not usually grant mortgages for 100% of a home’s value; instead, such loans typically cover between 75% and 80%. Therefore, buyers should keep in mind that, in order to qualify for a mortgage, they must have saved at least 20% to 25% of the home’s total cost.

Furthermore, this payment is not usually made all at once; rather, it is standard practice to first make a down payment of 10–15% upon signing the preliminary sales agreement and then, upon signing the final sales contract, to pay the remaining 10–15%.

Monthly payments

This is the regular payment you must make to the bank to pay off your mortgage. If you have a fixed-rate mortgage, this amount will not change over time; however, if you have a variable-rate or hybrid mortgage, the amount will change based on the benchmark index. Here you can find more information on mortgage interest rates and which one is best for you when buying a home.

Valuation

When a home is purchased with a mortgage, an official appraisal must be conducted by a company approved by the Bank of Spain. This process involves an additional expense, which is borne by the appraisal company and the official appraiser.

The cost is calculated based on the characteristics of the property being appraised—in this case, the home. Depending on the amount of work involved in this process, the fee will vary, though it can range from 100 to 500 euros.

Opening fee

Simply by signing a mortgage, the bank may charge an origination fee. There is no legal limit on this fee, but it typically ranges from 0.5% to 2% of the loan principal, with 1% being the most common rate.

In any case, more and more banks are eliminating their origination fees to make their mortgage offerings as competitive as possible. However, this does not prevent such fee reductions from occasionally affecting mortgage payments in one way or another and slightly increasing their total cost.

Commissions on associated products

To approve a mortgage, some banks will require you to purchase related products or services. These are typically optional, although signing up for them may allow you to qualify for better terms, such as a lower interest rate. They include opening accounts, taking out life insurance, setting up retirement plans, etc.

Recurring expenses

So far, we’ve looked at the costs involved in buying a home. But being a brand-new homeowner also means facing recurring expenses in various areas. Let’s take a look at what they are.

IBI

The Property Tax (IBI) is an annual tax that must be paid by the property owner as of January 1 of the year of sale. However, the owner may pass on to us the proportional share of the tax for the days until the end of the year during which we own the property.

Afterward, we will be the ones responsible for paying the full amount. Each city council sets a rate for this tax, but it’s important to know that it’s usually between 0.4% and 1.3% of the property’s assessed value.

Home Insurance

When a real estate transaction is financed by a mortgage, homeowners insurance is mandatory to cover fire damage. However, if the payment is made in cash, it is not required. Although, of course, it is highly recommended to take out a policy so that you are covered for the most common circumstances that may arise, such as wear and tear, flooding, theft, or the aforementioned fires.

And how much does this type of insurance usually cost? In Spain, the average price is about 176.29 euros per year. That is, less than 15 euros per month.

Condominium Fees

For homes that are part of a homeowners’ association, residents must also pay association fees. These cover both ordinary expenses —such as the maintenance and upkeep of common areas and access to certain services, such as trash collection—and extraordinary expenses —such as construction work on the facilities.

In this regard, every homeowners’ association is different and has its own fees set forth in its bylaws. So it’s best to find out about this monthly fee before buying a home.

Supplies

In order for your home to be livable, you’ll need to have a number of utilities set up: gas, water, electricity… not to mention phone service and Internet. So be sure to factor these monthly expenses into your budget as well.

How much money should you set aside for expenses related to buying a home?

As you can see, the list of expenses involved in buying a home is not exactly short. Buying a home is often a financial strain in and of itself, and adding these costs puts even more pressure on our budget. However, we can always make an initial estimate to help us set aside this money so we’re prepared when it comes time to sign the contract and complete all the paperwork.

In fact, if you recall, we’ve mentioned before that, in a mortgage-backed home purchase, it’s best to have between 20 and 25 percent of the home’s total value available for the down payment. But in addition to this amount, you’ll also need to have the money necessary to cover all the expenses associated with buying a home—the ones we just mentioned.

It is estimated that these amount to between 10% and 12% of the home’s total value. Therefore, make sure you have about one-third of the total cost (between 30% and 35%) available from the very beginning so that you can successfully complete the transaction.

We recommend:

• How can I save up to buy a house?
• Why Buy a House in Spain?