Mortgages or Financing in Costa Rica
Your American-European real estate agent can help you determine the best route for mortgages or financing in Costa Rica. This should be done according to conditions in the market and your personal situation.
In today’s’ market, if you are looking to purchase a property through mortgage financing with a Costa Rican bank, you need to either hire a real estate agent who is up to date on getting a mortgage for you. Or you need to do due diligence with all the banks and find out their requirements.
Mortgages or financing in Costa Rica usually have a much higher interest rate than mortgages in the US. Costa Rican mortgages are tied into New York Prime rate and in January 2012, NY prime is at 3.25%. Most banks in Costa Rica charge somewhere around NY prime + 6. Most mortgage loans go between 15 and 30 years, depending on your age.
Availability of mortgages
The availability of financing depends on your residency status; depending on the Costa Rica bank you have your bank accounts at. Most banks only finance residents when they purchase a home in Costa Rica.
During the boom, for 2006 – 2009, most banks would finance non-residents with good credit ratings in the U.S. This has now changed. The few banks still giving out mortgages to non-residents make you go through a lot of red tape. The route to mortgages or financing in Costa Rica for both residents and non-residents is much more arduous than in the U.S. and Europe. While it is not fun for those seeking credit, Costa Ricans can feel fortunate that the bank failures plaguing other countries have not surfaced here as much.
While credit is tight as of January 2009 due to the global crisis, we have reason to believe that Costa Rica credit will loosen up as soon as the worldwide financial system is more confident. Real estate developers who are selling their products to the local residents find no problem getting a mortgage for their buyers, though most purchases are in the lower price ranges.
More sellers are now offering short term owner financing to their buyers. Many will lend at the same interest rates as the banks offer. You can make a sizable down payment (50% to 70%) and get 2 or 3 years on the remainder. In the meantime you begin the process of getting residency and then pay off the owner’s loan with the mortgage you get as a resident.
Others find it easier to just use their retirement plan like an IRA, a 401K or RRSP for the purchase of their property in Costa Rica. If you have healthy credit back home, you can get an equity loan on your house until it sells and meanwhile buy the property in Costa Rica of your dreams.
Another option would be a hard loan, but these have interest rates between 14 – 20%, few buyers would get themselves stuck in in huge monthly payments.
Appraisals in Costa Rica – Loan amounts
Each bank has their own appraisers that they work with. Some banks won’t send the appraiser until the loan is pre-approved; others need the appraisal before they consider the loan. Because property values in Costa Rica are not as standardized and we don’t have CMA’s, one thing that can happen is the appraised value is lower than the market value of the property.
The appraiser won’t factor in features that make a home worth more on the market. Things like a panoramic view or state-of-the-art gourmet kitchen increase a home’s value significantly in the market, but sometimes not in the appraisal.
It may happen that you get a loan approved for 70% of the appraised value. Unfortunately, that turns out to be only 55% – 60% of the market value.
Pre-approve before you look at properties
Another factor to consider if you are purchasing a property, the bank will only give you a mortgage up to a certain value. These values change all the time. Also is it necessary to get yourself to be pre-approved before you start looking at properties and waste your and your realtor’s time, gas and effort. You’ll be surprised how different each bank’s requirements are.
Contact us now to purchase a home, condo or building lot and we’ll walk you through the mortgage process.
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