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Financing for foreigners in Costa Rica

Isabelle Emond

While it’s technically possible for a foreigner to get a mortgage with a bank in Costa Rica, it is also almost impossible to go through the process without losing one's mind. For the purpose of testing it, I tried in 2012. After 12 months chasing the employee in charge, trying to get a list of things missing and get at least a confirmation that the request was in process, I gave up. Somehow I knew from the beginning, I didn’t wait for an answer and purchased without a mortgage. Since then, the regulations are even more strict than they were before so let’s say that you should look at other options if you are serious in your process of buying. 

Many banks in your country of residence offer conventional property loans because they can verify your residency status, work history, and financial track record. The Costa Rican banks cannot secure the financing because they don’t have access to that information and even if they could, they would not be able to confirm it officially and legally. The language barrier between the countries just makes it more complicated as all legal documents in Costa Rica have to be received in Spanish and translated by an official Costa Rican translator. 

In general, most buyers who require financing either borrow funds in their home country through the equity they have on their residence, take out the money from their insurance funds or through their IRA, ask a private lender in Costa Rica or find a property where the owner is willing to finance.

If you turn to the private lender’s option, It’s most likely that they will request an evaluation of the property you want to buy, which runs between US$500 and US$1,000. This evaluation is at buyer’s charge. They also might ask for your bank statement of the last 12 months, a proof of where the money comes from and a proof of regular incomes. Each lender has its own list so make sure to ask before going through the process. They also might accept to finance for up to 70% of the property value or cost (lowest amount between both), for a period of up to 15 years and might charge an interest rate of 8% to 16%. All lenders will charge you an administration fee for taking care of your application, which is usually around 1.5% of the loan, but it depends on the package the lender is offering you. If this lender is recommended by an attorney, there might be % of a commission charged by the attorney. Most lenders will ask you to take out a life insurance policy and will force you to take an insurance on the property. The life insurance, while expensive, makes a lot of sense because if the borrower passes away, the insurance company will pay off the mortgage in full and the property will be free and clear for the surviving family members. Same with property insurance for an eventual fire or earthquake, the insurance would pay for the repairs and the property would keep its value. Getting approved by a private lender can be generally made within 30 days.

Sellers offering to finance in Costa Rica tend to be more flexible with the documentation you need. Usually, the seller offers to finance only to help the sale of his property and generally would prefer to have a cash sale. They won’t request an evaluation because as sellers, they know the value of their product. Some request a proof of income, some don’t. The typical owner’s financing we see is over 1-3 years at an interest rate of 6-9%, with a +50% down payment. Terms vary with owner financing and can always be negotiated. Several structures exist that allow for owner financing in a manner that protects both buyer and seller. The payments can be made monthly, per semester or annually. The interest only could be paid and capital would be due at term. Interest and a portion of capital could be paid with a balance at term, commonly called a “balloon payment”. The interest and capital can also be paid totally within the period with no balance due at the end. The way it’s scheduled is often part of the negotiation with your agent and the seller’s agent. 

The person receiving financing usually pay the mortgage costs. A mortgage can be made at the time of closing of the sale by adding a mortgage clause in the transfer deed. A separate mortgage can also be made. A mortgage within a transfer deed cost 0.25% in registration fees and around 0.53% in documentary stamps. The notary will also charge for drafting the mortgage instrument and that fee can range from approximately 0.50% to 1.25% of the amount of the mortgage. Ask your attorney within the due diligence period what the total closing cost would be if you register a mortgage. Make sure they include appraisal fees, administration cost, mortgage cost and any other cost they might charge you. That way, you will be a happy buyer and won't have unhappy surprises! 

Isabelle Emond, Broker/Owner