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Is buying a house with bank financing and no money down possible?

Estimated Reading Time: 7 Minutes

Buying a house with bank financing and no money downCan you possibly buy a house with bank or owner financing and no money down in Costa Rica? Is that possible?

The short answer is no unless you do it illegally. And believe me, it happens.

I recommend against it. If you are selling your house and a buyer or a real estate agent makes this offer, reject it. Read on and learn why.

On December 30th, 2014, I received a call from someone referred to me by a fellow countryman of his. The buyer was interested in a FireSale property in Escazu I had listed and wanted to see it on December 31st, New Year’s Eve. I was really on vacation, as I close the office during the Christmas holidays around December 18th every year.

I was at home anyway, so I thought, “what the heck, it’s not a bad idea to make a sale on New Year’s Eve.” The buyer said he lives in Escazu as I do, so that it would be an in-and-out showing anyway. Yeah right.

A Motivated Seller

I listed the house initially at $375,000. But, he had just come down to $349,000 a couple of days before this client’s phone call, now quite a bit under the regular market price. The seller was very motivated because he foreclosed on the former owner and wanted to dump the property quickly. The seller knows this is an older home and that the kitchen and the bathrooms need some TLC. Therefore, he is open to an offer and will even do some owner financing, which I told the interested buyer.

The property we are talking about is a 4,600 sq feet home on a ¼ acre of land in Escazu with views of San Jose. The land, without the construction, is valued by the municipality at $250,000.

Buying a house with bank financing and no money down

Tico Time

This client, a foreigner who recently moved to Costa Rica, adapted quickly to Tico Time. After waiting in my car at the Paco mall for an hour, the client showed up with the whole family. I felt right away that this would be like a day in the mall for him and his family. There was no traffic on December 31st at 10:00 am, but I understand it can take a while to get your family ready to look at a house.

No money down?

While I am showing the property to the buyer and his wife, the kids run all over the house. Then the husband tells me his story:

He has a loan officer lined up at a bank who will help get the property appraised at 135%. This movement is necessary because he has NO money down, and the bank wants him to put down 30% plus closing cost.

Hmmm… that is interesting. I’ve heard a few, but this is a new one.

So this is a loan officer who is willing to commit fraud, together with the appraiser; they both work for the bank. What this buyer proposes will work until some bank auditor finds out about this scam. But, the way they play this game, it is indeed possible to buy a house with financing and no money down at all.

I’m sure they’ll find a few real estate agents to cooperate with the scam so they can earn their commission. Another critical issue in this scam is that the buyer needs to have enough income to cover the monthly payments. Unless he plans to flip the property. But, his credibility is the banks’ problem; in my opinion, he doesn’t have any.

Buying a house with bank financing and no money down

A foreign resident and 100% loan

This buyer is a foreign resident and wants a local bank to finance his home purchase 100%. But, of course, there is no risk to the buyer. When he can’t make his payments, he can just walk away from the asset and leave the country. All the risk is for the bank.

Money laundering

Money laundering laws in Costa Rica make it difficult for a transaction like that to function. The sale proceeds need to be documented, and creating a paper trail is a must.

To make this scam work, the seller will have to return the extra 35% to the buyer at closing to look like the additional 35% came from the buyer. Because the disbursement check that the seller receives is for 135% of the actual sales price.

I guess the loan officer can make miracles happen and earn his nice commission under the table.

Capital gain tax

The seller, on the other hand, if the property is not his/her residence, will have to pay capital gain tax in Costa Rica. He will have to pay 15% capital gain tax over the price he foreclosed the former owner on and the new sales price, which is 35% higher. Besides, if the seller is a U.S. citizen, he will also have to pay capital gain tax in the U.S.

Earnest money

I explained all that to the buyer. But he insisted he could make it work. Since he had no money down for the purchase, I asked him if he had at least 10% earnest money to secure the deal with the seller. He said he did not have any earnest money either but wanted me to make the seller an offer for $275,000. Remember, the asking price is now $375,000.

What a deal

Ok, so now I have a buyer with NO money. This buyer makes an offer that

  • It is almost 27% lower than the already reduced asking price
  • A promise to sell from the seller for three months. The house will be off the market during this time.
  • There is no earnest money deposit, so there is no security for the seller that the sale will happen.
  • The seller has to cooperate with an illegal scam.
  • At closing, the seller has to return the 35% extra to the bank
  • AND the seller will have to pay extra capital gain taxes too.

New Years Eve

Now, don’t forget that this is new year’s eve. I had to sit in my car for an hour, waiting for them. Those who know me know I have a lot of patience (now, not as much as I had in 2014).

I asked the buyer and his family very nicely to leave the property and not return.

The buyer has not contacted me anymore. But, of course, he will be trying the same thing with another seller until he finds one desperate enough.


I’m sure this loan officer will one day lose his job or end up in jail as soon as his boss finds out about this fraudulent lending practice.

For those looking for a bargain and want to make a lowball offer on Costa Rica real estate, I have one recommendation: CASH IS KING. With that, I mean buying without financing.

Now you all know how I spent my New Year’s Eve 2014. While other realtors were lying on the beach with a piña colada, I was dealing with a buyer with no money down, but at least I got a topic for a blog out of it (big deal, eh).

Contact me now if you are a buyer with money down; we love your business.

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Ivo Henfling

If you are looking to buy a home in Costa Rica or invest in a condo anywhere in the central Valley, or looking for any property for sale in Escazu, you need to call me. I have been selling real estate in Escazu for over 20 years and can show you hundreds of happy buyers of real estate in Escazu and other areas. To me, a deal is not a good deal unless both buyer and seller are happy.

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