When applying for a mortgage, it is normal to have an amount saved from the purchase, so that the loan you request from the financial institution does not constitute 100% of its cost.
How much should you have saved for the house? The recommended percentage ranges from 15% to 30% depending on the institution you apply for the loan with. There are many ways to get that money, such as saving on your own.
However, it is common for your parents to want to help you at this point or for you to directly ask them for help to face the entrance of the house.
Not in vain, that initial money is one of the main obstacles to young people buying a home. In other words, many have the income to take the step , but they lack the savings for the down payment. Well, there are two different ways of approaching the issue, each with its pros and cons.
The first is the classic one, where they “give” you the money, which would be a donation. The second is less common, although it is increasingly used: loans between relatives to buy a house.
How donation works
Donating money involves giving a sum of money that the person (donee) will not return. In other words, it is given or transferred voluntarily and selflessly without expecting anything in return. In the case of money to buy the house, it does not matter if they deposit it into your account, give it to you in hand for you to pay or transfer it to the seller from their account. All of these transactions are donations and, like any donation, you will have to pay taxes on it.
Donations are not free. Although you will not have to pay back the money, it is essential to pay Inheritance and Gift Tax (yes, the same as for an inheritance ). In a donation, the person who pays is the person who receives the money (donee) and will do so in the community in which he or she resides.
In fact, the amount to be paid in taxes will depend on three factors:
1. Where you reside, since the tax is transferred to the autonomous communities and there are many differences between them.
2. The amount you receive, so you will pay more the more money you are donated.
3. The assets you already have, which will increase the amount to be paid if it is very high.
How family loans work to buy a house
A loan between individuals works exactly the same as a personal loan with a financial institution. It's that easy. The difference is that, since you do it with a family member, you can play with all the elements of the loan in a way that you couldn't with a financial institution. This includes the interest rate to be paid, which can be 0%, so they would be lending you the money without interest.
What if you are charged interest? The lender will have to declare the profit in the personal income tax as income from movable capital.
From there, the ideal is that the loan is as similar as possible to a normal loan. That is, that there are no abnormally beneficial clauses such as grace periods of several years or freedom to pay the installments as one can.
A contract must be signed. All loan conditions must be reflected in the loan contract. The minimum information that the document must include is:
? The date of signature and the personal details of the lender and borrower, even if it is a loan from parents to children.
? Whether it is a free loan with a 0% interest rate or an additional interest rate is set.
? The amount of the loan. If there is more than one lender (the father and the mother), the amount that each one is lending must be detailed.
? The loan repayment period , which must be realistic with the market and, above all, the age of parents and children. For example, it would not seem very logical for a 70-year-old father to sign a 40-year loan with his son.
? The way in which the installments will be paid. The most common is a monthly payment, but quarterly, half-yearly or annual payments can be established. It is even possible to repay the entire loan after a number of years, although this is less common.
? How to proceed with partial or total early repayment . That is, whether the loan can be repaid early and how to do so.
? Steps to follow or consequences in case of non-payment. This is common when there are other siblings or when uncles or siblings borrow money to buy a house.
Although it is not mandatory, you can go to a notary to sign the contract. This way you can make sure that everything in the document is in order.
Inform the Treasury: submit form 600
Once the contract has been signed, the document must be submitted to the Treasury, for which the Tax Agency (AEAT) form 600 must be filled out.
Loans to buy between parents and children and in general any loan between individuals are subject to the Tax on Property Transfers and Documented Legal Acts, although exempt from payment. That is, you must provide information, but you will not have to pay taxes.
This procedure is what the Treasury uses to verify that the money you received from your parents to buy a house is a loan and not a donation for which you would pay taxes.
With both the loan and the donation, you have 30 working days to complete the paperwork with the Treasury within the deadline.
Once you sign the loan between individuals, you can apply for a mortgage to buy with complete peace of mind.