Financing in Costa Rica for Non Resident Real Estate Purchasers
Banks are divided in two categories: Government Owned and Private. Government owned banks historically have been more cumbersome to deal with and have more red tape and compliance procedures. Private banks have been more versatile and client oriented. However this pattern has been changing recently due to changes in the financial and real estate environment, including the need to allocate funds accumulated by local Voluntary Retirement Funds´ Operators (OPV is equivalent of 401k programs in the US), the recent purchases of five major CR Private banks by Scotia Bank, Citigroup and HSBC and the dynamic turnover and growth of the real estate market.
Mortgage Companies: There were no Costa Rican mortgage companies in the past, but as a result of the above mentioned changes, some US mortgage companies have established operations in Costa Rica as well, during the very recent years.
Private Lenders: known as Prestamistas, are private individuals who lend money to borrowers who have real estate as collateral, through their attorney or broker, typically secured with a First Degree Mortgage. These Lenders usually charge higher interest rates than banks and don’t require as much paperwork, ex one to three year terms, 16% to 20% yearly and 10% of principal loan and legal fees.
Procedures and Paperwork
Loan Application Form Signed and notarized with applicant’s full identification, contact information, address, work place, family status, financial situation and property’s full legal description, together with the respective documents backing up or evidencing such information, ex. id copies, birth and marriage certificates, Certified Public Accountant (CPA) document on Borrower’s financial situation, together with bank, credit card or brokerage account statements, utility receipts, commercial and personal references, title and survey map of property and income tax returns and municipality real estate taxes´ receipts. If the Borrower intends to title the property under a company, a notarized set of company’s documents have to be included as well.
Other Bank or Loan Documents related compliance documents like: authorization for Bank or Lender to obtain Credit Report (W-2 form), affidavit from borrower about Borrower’s existing debts, some waivers and disclosure documents for the CR Bank Regulator Authority SUGEF to disclose privileged financial information to Lender.
Discharge Documents that may be needed to prove payment and compliance of past debts, that the above disclosures and report may show up as standing.
Property and Collateral Information such as the appraisal of the property, usually done by the CPA of the Lender’s choice upon payment of a fee by the Borrower. Copies of construction’s blue prints, Municipality constructions permits and a id and Letter or Purchase Document from Property’s Seller stating the transaction’s main points: purchase price, down payment, closing date, property legal description and else as applicable.
Approval and Closing: upon approval by Lender the Borrower and Seller (if applicable) have to personally attend the Lender’s offices to sign the documents with the Lawyer/Notary Public of the Lender. Usually this document is a First Degree Mortgage with Purchase and Sale Deed if a sale is involved. The processing and legal fees will be charged to the loan’s amount and the Lender gives a check to the Seller at this time. If the funds are for construction, the Lender will give the funds in instalments according to construction’s progress and after Borrower has covered the first 10% to 20% of the construction phases.
Terms and Types of Loans:
Loan terms Vary depending on Borrower status and property usage and location. Family home loans with two sources of income from each spouse, in gated higher end residential projects, have lower interest rates, because the Banks can package such loans as a Mortgage Portfolio and sell them in the stock markets. Formerly Banks were reluctant to lend outside the Greater Metropolitan Area (ie. San Jose, Heredia, Alajuela and Cartago cities´ cluster). With the booming of ocean and mountain master planned residential projects, this policy changed and loans are available for qualified projects.
Interest Rates in Costa Rica Financing in Costa Rica for Non Resident Real Estate Purchasers – Banks’ yearly interest rates for US dollars, range from 7% to 12% normally variable rates based on Prime Rate (New York financial market lending rate) or Libor (London inter bank offering rate), including a surcharge interest, and range from 10 to 30 years. As a result of competition and the market growth, Lenders are offering different loan options such as fixed rates, leveled variable rate based on Prime Rate or LIBOR, bracketed rates, first to third year fixed rates, colones, dollars or computer currency loans. Loan, legal and taxes fees were historically as high as 10% of the Loan’s sum, but we have seen recently fee free Loans.
Sources for Loans
As we said there are plenty of Lenders in the market and here are some websites for contact and reference:
Stewart Title Company mortgage program:
Financiers and Mortgage Companies: