Costs associated with buying a property

Buying a house involves some mandatory costs that you will have to budget for, regardless of whether or not you apply for a mortgage to finance the transaction

An important question that is always overlooked to begin with. What are the costs associated with buying a property? Buying a house is probably one of the most significant financial decisions you will have to make in your life due to the amount of money involved. Furthermore, when taking this step, you must take into account that there are a number of costs associated with buying a property that you will have to budget for. Irrespective of whether you obtain external financing (generally in the form of a mortgage), the transaction will involve mandatory costs that are not specified in the price of the property and that you should be aware of in order to calculate the total amount you will have to pay.

Costs associated with buying a property are usually borne by the purchaser. As several services are involved and in order to help you to understand the process, in this article we have divided them into mandatory costs (even if the property is paid for in cash), and costs associated with a mortgage.

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Costs not associated with a mortgage

A significant portion of the costs associated with buying a property stem from the transaction performed to acquire the real estate. These are mandatory charges or service costs that are not included in the property's market value. These costs, which will be itemized below, are borne by the purchaser, unless the vendor pays for all or some of them.

Realtor percentage

If you opt to use a realtor to buy a house, they are likely to charge a percentage of the value of the acquisition. This percentage is not regulated by law and depends on the geographical area the property is located in. However, as a general rule, realtors charge a percentage of between 1% and 3% plus VAT.

The percentage charged by the realtor is one of the costs that can be shared by the purchaser and the vendor, or borne entirely by either one of the parties.

Notary Public costs

The Notary Public approves the public deed of sale, which is the most legally binding document that has to be entered in the Public Register. The buyer can choose which Notary Public to use. The latter will charge a fixed fee set by the Government, the cost of which is determined by the value of the property.

Cost of entering the property in the register

Another cost associated with buying a property is entering it in the corresponding Property Register. As with Notary Public services, registration costs are also set by the Government and are the same for all property registrars. Prices will vary based on the particular characteristics of the entry and whether or not it is necessary to perform other procedures, such as attaching land registry extracts to the entry.

Paying VAT or Tax on Capital Transfers

Almost all financial transactions involve paying a fee to the Public Administration. If you are buying a house, this tax will vary based on whether it is the first, second or subsequent time it has been transferred.

VAT will be charged on the transaction if it is the first time the property has been sold. This cost is always borne by the purchaser. The VAT rate payable depends on the type of property acquired. For houses, 10% of the sale value is charged, unless the property is subsidized by the government, in which case, the tax rate is 4%.

When a property is sold for a second or subsequent time, Tax on Capital Transfers is charged rather than VAT. Tax on Capital Transfers rates are set at Autonomous Community level and vary depending on where the property is located. However, rates are usually between 6% and 10%.

Costs associated with a mortgage

Few people are able to pay for a property in cash due to the large amount of money involved. Therefore, external methods of financing are often sought, of which the most common is a mortgage. A mortgage involves some costs, principally the interest rate charged by the credit entity on the money loaned. However, what prospective buyers often don't realize is that mortgages also carry other prior costs that they must bear.

Cost of valuing a property

A property valuation will be a bank's first requirement in order to grant a mortgage. This means that a property must be valued in accordance with certain factors such as location, layout, proximity to public transport, etc. This is a basic and mandatory requirement, as banks generally finance 80% of the appraisal value rather than 100% of the property value.

Stamp Duty

This represents a percentage of the mortgage liability undertaken via the loan. In other words, it is a percentage of the total capital granted for the mortgaged property. Both properties that have been sold before and new subsidized properties are exempt from this tax.

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Mortgage deed

A mortgage deed is the document finance entities use to treat mortgage beneficiaries as purchasers. It is a mandatory procedure, as all mortgages must be notarized.

Entering the mortgage in a register

Both mortgages and properties must be registered in the Property Register. The price associated with this procedure is also set by the Government and varies depending on the mortgage characteristics.

Buying a property is a complex financial transaction as there are many associated costs. Therefore, it is important that you are aware what these costs are and bear them in mind when calculating both your borrowing capacity and how much you can actually spend.

With the BBVA Valora tool you can find out key aspects about the property you want to buy and about the neighborhood it is located in, thus allowing you to perform some initial calculations to purchase a property.

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