Financing options for purchasing property varies from country to country. In Costa Rica, the question of what is needed to obtain a loan to buy a home is a common one, especially for those who have recently moved to the country. Below is a step-by-step approach to get the financing that you need to purchase your Costa Rican property.
You may wonder how a non-citizen or resident can get a mortgage on Costa Rican property. You generally cannot get a traditional bank loan for a Costa Rican property unless you are a citizen or resident. There are reasons for this restriction. Primarily, after the 2008 crash, many banks were in serious trouble here. Many non-resident foreigners who obtained bank loans simply walked away and went back to their home countries leaving the banks holding the bag.
It is understandable that Costa Rica draws in people from across the Western Hemisphere because of its favorable climate, beautiful countryside, and excellent living conditions. However, since non-residents and non-citizens have no access to credit in Costa Rica, they cannot get a credit check nor provide a track record of their finances from within the country. So, until you become a legal resident, bank financing is out of the question.
However, there are legal ways to get around this restriction which depends on three factors;
- Your Circumstances
- Where You Plan to Purchase
- Who You Purchase the Costa Rican Property From
Basically, your circumstances will depend on your income and other assets that you can use to buy the home. Where you plan to purchase has an effect as well since coastal property is often more expensive. But the most important factor concerns the current property owner and what type of financing they are willing to take.
For those who are looking to buy their retirement home, investment property, or vacation home, you can find legal financing if you go outside the banks.
If you are planning on moving to Costa Rica soon and cannot secure a mortgage for whatever reason, then your best option is to rent a place first until you establish your legal residency. Becoming a legal resident will open up more affordable options in getting financing for a home. Plus, if you decide that Costa Rica is not for you, then all you are out is the renting costs.
A private loan is one of the most popular options, providing a way around the banks while still getting the property that you want. Many real estate agents in Costa Rica can connect you with private lenders, who do offer interest rates a little higher compared to most banks which range from 10% up to 14%. Plus, most private lenders will offer loans up to 50% of the Loan to Value rate and it will last from 12 to 36 months. You do have renewal options for the loan if you cannot pay it off in that short of a time.
It is recommended that you have a substantial down payment available which makes the loan as small as possible. This is because of the short time frame and higher interest rates associated with private loans. Be aware that private lenders charge interest only. This reduces your monthly payments compared to banks that have a blended payment of interest and principal.
One legal option is having the loan financed by the owner. You will find property owners who will provide owner financing for Loan to Value (LTV) rates of up to 50%. This usually covers a period of two to three years and many have equal or higher interest rates compared to the banks.
So, you will pay more if you choose the owner financing route compared to getting a loan from a bank. However, if a bank loan is not possible, then owner financing may be your best option. However, keep in mind that owner financing is not the most popular option for those owning property in Costa Rica. They often must buy another home and will not have the capital to do so under this form of lending.
Why Private Loans Are Best
Of the three options, a private loan may offer the best results in terms of availability and owning property as opposed to renting. There are solid options available when choosing the private lenders who operate in Costa Rica.
The qualifications for this type of loan are not all that different compared to purchasing property in many other countries. You will need to have a steady income and a substantial down payment to get the home you want. The good news is that with private lending, interest rates are only a little higher compared to Costa Rican banks.
For more information on private lending for Costa Rican property, check out Gap Equity Loans!