When is a mortgage approved
Mortgage applications in Spain can be a little confusing unless it is made clear to the applicant what the process is with the Bank they are applying to and at what point the loan is secure and fully underwritten.
Unlike other countries like the UK the Banks in Spain do not normally provide a pre-approval for lending unless a fully documented application has been made.
When applying direct to a Bank the paperwork provided by the Bank can however lead applicants to think a pre-approved loan is exactly what they have.
What is the process in Spain
Most Spanish banks provide a client who makes direct contact with a sheet called a FIPER. This document later on the process is an important document outlining the agreed terms and conditions of the loan but a FIPER generated at branch level and passed to a client before a full application for a mortgage in Spain has been made is just an illustration of what might be possible not what is agreed.
One lender Sabadell has a scoring system which allows the branches to give the applicant a good idea of what would be possible based on either documents supplied to the branch or information verbally passed to the branch. The scoring system is a viability check for the loan and is based on the performance of the Banks back book relating to employment types, occupations, ages, marital status, loan to values and a number of other factors. When loaded into the Banks systems the computer generates a pre-approval with the likely loan to values and rates, a referral or a rejection.
Is mortgage scoring an approval
After scoring has been done a full application for the Spanish Mortgage must be sent to the risk team to be signed off and whilst the scoring system gives a good indication, in a fast period of time, as to the loan on offer this is not secure or terms and conditions definite until the underwriting team have reviewed the file.
Only having an approval that has passed scoring with Sabadell is no guarantee a loan will be possible or should be taken as such. Only after written approval is gained from the risk teams should a fiscal approval be deemed to be in place.
Making an offer on a property and paying over non refundable deposits on the back of a pre-approval that has been through the Banks scoring system could lead to problems if finally what is expected is not provided when the full application is made. Even if documents have been presented an applicant should always check this is a fully underwritten approval rather than a branch generated one.
How do I know what type of loan approval have
Speed may help an applicant decide what type of approval they have. A fully underwritten approval is going to take at least one week from the point all the documents have been presented to come back. If an approval is back the next day it is just one that has passed scoring.
Sometimes due to language barriers or misunderstandings an applicant can be confused as to exactly what they have.
Banks in Spain who have no scoring system
Other Banks outside of Sabadell are even further down the risk sophistication gauge. No other Spanish lender in Spain has an internal scoring system so any information given to an applicant at branch level will be only an illustration of what the Branch thinks may be able to be done and will not be worth the paper it is written on.
Many Banks in Spain will not underwrite voluntarily an application until a client has a specific property in mind and can supply a Nota Simple for that property and some will not in fact underwrite the loan fiscally at all until the valuation of a specific property has been made.
Paying for a valuation before a fiscal approval is underwritten could mean an applicant has to pay for a valuation and then has an application rejected on the basis the fiscal details of the client do not meet criteria. Banks that work this way should be avoided.
How to avoid mortgage offer confusion
A good mortgage broker who has long established links with Banks in Spain should be able to dictate that their clients gain a fiscal approval for the mortgage in Spain before a property is found. This allows the buyer of property in Spain to make an offer with confidence of their exact budget and the knowledge they will have the ability to move with speed. At the very least by using a third party to arrange the loan an applicant will not fall foul to misunderstandings over at what point in the Banks application process the application really is.
Finally when applying for a mortgage in Spain you never have a binding offer from the Bank until not only the fiscal approval is underwritten at Head Office but the valuation has been made, checked by risk and the loan signed off by the Head Office underwriting team.