Hello Joshi,

Yes, that is right; you will have to wait until she has been living in Spain during one year to be able to apply for her Spanish passport by residency. Otherwise, she gets the same Passport as her parents, unless your national Law does not recognize right to citizenship to children born out of the country. Is she was considered stateless, Spain would grant citizenship to her.

With regards to timing, it can take is between 8 months and a year once the application has been filed, depending on each Civil Registry. In response to your last question, it is better to stay in the country to account for the one year requirement.

You can check this information at the Ministry of Foreign Affairs website.

Best Regards,