Dealing with home financing in Costa Rica
Are you dealing with home financing in Costa Rica or will you be soon? Then you will find this a very useful blog.
Purchasing a home is a huge responsibility, especially if you think you can afford it but can’t find any home financing.
Often, future expats start shopping for a home in Costa Rica without knowing they can’t get a mortgage. But there might be ways to do this if you shop with us, but bear with me for a while.
For those coming from other countries, it is important to know that bank mortgages go around 10% in U.S. Dollars and 11 – 12% in Colones. This is much higher than what you’re probably used to.
Just like in most countries, it’s pretty easy to find home financing if you comply with two requirements:
- Having legal residency
- Your income & spending qualify you
Residents and citizens
If you do comply with those two requirements for home financing, I suggest you shop around as many banks as you can. Especially when there is a housing expo, banks offer all kinds of options.
Some banks also offer an inventory of foreclosed properties, with 100% financing. But be aware that most of those properties are overpriced.
There are a few details that you should know about before you start shopping around for a mortgage:
- Before applying for any bank loan, ensure that you have a healthy credit. If you have lots of pending debts and bad credit rating, you may want to consolidate your loans first with a local bank.
- The bank will offer 80% financing on a home and 70% financing on raw land. Some also offer construction loans.
- Some banks will lend 100% or the purchase price if you buy from a real estate developer.
- Choose If you want the home financing in U.S. dollars or in colones.
- For a 10, 20, or 30 years term.
- The interest rate is fixed for only 2 years. Based on New York Prime or Libor for dollars. TBO (Tasa Básica Pasiva) for colones. Then they add 4 – 5% on top.
- Bank commission is 1.5 – 2%.
- The total closing cost will run around 7%, just the legal cost is about 3%.
- There will be pre-payment penalties.
- Depending on your age, a medical check is mandatory.
- Many banks will also include life insurance as a mandatory requirement.
- The cost of an appraisal will run between $500 – $1,000
If you do NOT comply with the legal residency (yet), there might be some other options for you. You’ll have to be a little creative and your real estate agent will be able to assist. IF that agent is a good one.
Here are a few ideas:
Home Equity Loan
Holding onto your real estate back home and still buying in Costa Rica? Maybe your banker in your home country will assist in a home equity loan. Or when your property back home is listed for sale, you could get a bridge loan in the meanwhile. Check your options with your connections in your home country.
Looking for a property with home-financing offered by the seller can be an option. Most sellers will only offer owner financing for a short period. Get owner financing for a year, so you can acquire legal residency first and apply for a bank mortgage later. Talk to your real estate agent about this option before you start shopping for a home in Costa Rica.
Do you have access to your retirement funds without having to pay taxes on those funds? Did you know you can use your retirement funds to buy property in Costa Rica and roll them over?
Private lenders might be much easier on the paperwork. BUT interest rates and closing costs on mortgages are much higher. Rates will run from 10 – 20% and they will not accept over 50% LTV.
Unsecured Personal Loan
Do you have a good credit score? Then Costa Rica Mortgage Solution can assist. Check here.
Rent for the first year. Don’t even start shopping to buy a home if you don’t have the home financing in place. This will also give you time to figure out where exactly you’d like to live.
Get going on your legal residency first. Talk to your lawyer or use one of the awesome attorneys that we recommend. Once you have your legal residency, you can apply for home financing with any local bank, as long as you can prove income.
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I DO want to remind our readers that we appreciate any referrals you can send us. Also, please remember the GoDutch Realty agents when you talk about your home in Costa Rica, we appreciate it.