Mortgage Direct has had many years of experience arranging construction mortgages in Spain, helping clients to secure financing to build a wide variety of properties from modernist villas in Ibiza to family homes on the PGA Catalunya golf resort, as well as total renovation of luxury apartments in Barcelona and Madrid and many more.¬†
This type of mortgage is very different to a standard mortgage and the process needs to be explained properly to any clients thinking of undertaking such a project. The first point to make clear is that clients need to have sufficient funds, not just for the down payment and the fees and taxes, but surplus funds to ensure that the ongoing costs can be met when waiting for stage payments from the lender.
Another important point that clients need to be aware of is that the bank underwriters will not underwrite applications until a valuation has been carried out, so they are aware of the value of the plot and the project before they make an assessment on the financial profiles of the clients.¬†
When we are arranging construction mortgages, first we make our own assessment of the client’s financial profiles and only discuss these with lenders if we have any doubts about whether they will meet their criteria. Some banks might provide initial pre-approvals, but these are not binding.
Minimum Documentation for Construction Mortgages
As well as the valuation, the lenders generally require copies of the Proyecto de Ejecuci√≥n (Project of Execution), Licencia de Obra (Building License) and the Presupuesto (Quote) from the main contractor with detailed cost breakdown, before they will underwrite the application for construction mortgages.
Owning the land
The clients do not need to own the land prior to going to the notary to sign the mortgage deed, although many clients purchase the land first or have owned it for some time before they apply for the mortgage. ¬†Clients can purchase the land at the same time as signing for the mortgage and the banks we recommend for this type of mortgage will finance up to 50% of the cost (or value if lower) of the land at the notary and then the rest of the mortgage funds are released in stage payments. The typical amount of financing available is around 60-70% of the value of the project, which includes the land. The number of stage payments is usually agreed between the applicants and the lender. At each point when a new stage payment is due, a specialist valuer will visit the site to assess progress on the build and decide if the next payment can be released by the lender.
Final stage payment
With construction mortgages, banks do not provide the last stage payment until the Certificado de Fin de Obra and C√©dula de Habitabilidad are available, which means the funds are not usually available before the developer requires their own final payment. At the start of the project, when deciding on the number of stage payments, it is important to realise that there may be other points in the process when the developer requires payment, but the bank is not ready to release more funds.¬†
If you are considering buying a plot of land to build your dream home and would like to talk to an expert about the financing options, please get in contact with now and we‚Äôll be delighted to assist.