By: Ron Snell.
Clients often ask us about options for financing their purchase when they are thinking about buying a home in Costa Rica. For a long time, those options have been pretty limited, but there are new possibilities opening up.
The standard answer is that if you can’t purchase with cash, you could request short term Seller financing. If a Seller does not need all of the money immediately, they might consider something along the lines of 50% down, 3-5 year term, and 6% interest. That would allow enough time for you to reach retirement age, cash in some investments, sell a property in your home country, get moved down here, and then pay off the loan.
Beyond Seller financing, the best option has been to borrow the money in the home country by means of a loan from relatives, a home equity loan, or some other lender. Home country mortgage lenders and banks typically don’t lend overseas, so you have to have some other source. In addition, if you are not a legal resident of Costa Rica when you buy, it is very difficult for you to get a loan from the normal banks and lenders.
Recently we have heard from some companies here in Costa Rica that have begun to make loans to foreigners for homes. While they aren’t for everybody, they might make it possible for you to get your dream home without Seller financing and pay it off when you are ready.
Keep in mind that many homes here are second purchases so they are treated like vacation homes. As is typical in other countries, loans for vacation properties may face extra scrutiny and higher fees and rates.
We just received information from a lender who is advertising mortgages for homes here. Note that this blog is being written in May, 2019. Things can change, but here is the information we received as of this writing, with a few annotations:
The interest rate and down payment will depend on your home country credit score, as follows:
|All Owner-Occupied & Second Homes in Costa Rica
Minimum Loan Amount: $100,000 Maximum Loan Amount: $1,000,000
|FICO (US only)||CANADA||RATE||UP TO LTV||MAX DTI|
|>=800||>=850||8.50%||75%||28% / 45%|
|770-799||820-849||9.00%||70%||28% / 45%|
|740-769||790-819||9.50%||65%||28% / 45%|
|710-739||760-789||10.00%||60%||28% / 45%|
|680-709||730-759||10.50%||60%||28% / 45%|
|650-679||700-729||11.00%||60%||28% / 45%|
Using a best-case scenario, this means if you have the top tier credit score, you will pay at least 25% down and have an interest rate of 8.5%.
Additionally, there will be extra fees associated with getting the loan, and some of those fees will be much higher than you are used to in your home country.
Loan origination 4% of the loan amount. (That’s a lot! In the U.S. this is more like .05%.)
Processing Fee $400.00
Underwriting fee $1,295.00
Funding Fee $175.00
Document Prep Fee $400.00
Credit Report $100.00, or $125.00 for 2 people.
Inspection Fee depends on property. Estimate $500.00
Appraisal Fee depends on property. Estimate $1,000.
If you were to buy a $400,000.00 home and you were in the top tier of credit ratings, here is how that might look with a minimum down payment of $100,000 and a loan of $300,000:
Down Payment: $100,000.00
Loan Origination Fee: $ 12,000.00
Underwriting fee: $ 1,295.00
Funding Fee: $ 175.00
Document Prep Fee $ 400.00
Credit Report $ 125.00
Inspection $ 500.00 (Estimated
Appraisal Fee $ 1,000.00 (Estimated)
Normal Closing Costs $ 8,000.00 (Assuming 50/50 split with Seller)
Total to Close $ 123,895.00
These numbers come from just one company. There may be others as lenders open up offices here, but these will be representative as you consider your options.
One final thought: If you are purchasing a nice property to be used as a rental for a while, you might very well recoup your upfront costs (minus down payment) within a year. Then renters would make most of the monthly payments for you until you move in and pay off the loan. Run the numbers, talk to a rental management company, and consult an attorney. It’s certainly something to consider!