Financing in Costa Rica

Residents versus Non-Residents

The availability of financing may depend on your residency status. Obviously a person who has taken the time and has the wherewithal to establish residency is a lesser risk (in the eyes of the mortgage holder) than a person who is not a full time resident and does not have the residency permit.

However, the new trend is to offer financing to non-residents with good credit ratings in the U.S. The route to mortgage financing for both residents and non-residents is much more arduous than in the U.S. and Europe. While it is not fun for those seeking credit, Costa Ricans can feel fortunate that the bank failures plaguing other countries have not surfaced here. While credit is tight as of January 2009 due to the global crisis, we have solid reason to believe that Costa Rica credit will loosen as soon as the worldwide financial system is more confident.

Financing for Non-Residents

Until recently financing for non-residents was hard to come by, usually buyers ended up making arrangements with the owner, or using equity to get a loan on their property back home, which they then applied to the purchase of property in Costa Rica.

However, this is now changing. Many banks are now offering loans based on your U.S. credit, and there are some private financial entities servicing this market as well.

Owner financing is still an easy option, if possible. You can make a sizable down payment (50% to 70%) and get 2 or 3 years on the remainder. In the meantime you begin the process of getting residency and then pay off the owner's loan with the mortgage you get as a resident.

Another common way is to purchase the home in Costa Rica with cash. The most common reason people can do this is that they have sold property back home and have the cash available to invest in a new home in Costa Rica.

Some people get a second or first mortage on property in the US that they then use to buy property here. You can also use your IRA to buy property anywhere, including Costa Rica. See our "Buying Property With Your IRA" article

There are just a few banks here that will loan money to foreigners who aren't legal residents. The application approval is based on your credit history in the U.S. and U.S income. They will typically loan up to about 70% of the appraised value of the home.

Financing for Residents

If you are a legal resident, you may get a home loan from a local bank, either a private bank or one of the state banks.

Currently, mortgage rates in Costa Rica are fairly competitive with U.S. rates, but most buyers find the closing costs significantly higher here. This is somewhat of a misperception, as there there are some "hidden" closing costs that banks here don't add into the loan amount. An example of this is title insurance, which is mandatory in the U.S. and not required by banks here.

Appraisals in Costa Rica - Loan Amounts

Each bank has their own appraisers that they work with. Some banks won't send the appraiser until the loan is pre-approved, others need the appraisal before they consider the loan. Because property values in Costa Rica are not as standardized, one thing that can happen is the appraised value is lower than the market value of the property. Most homes that expatriates buy are custom built. So getting a comparative value is difficult. Also sometimes the appraiser won't factor in features that make a home worth more on the market. Things like a panoramic view, or state-of-the-art gourmet kitchen increase a home's value significantly in the market, but sometimes not in the appraisal. It may happen that you get a loan approved for 70% of the appraised value, but it turns out to be only 55% - 60% of the market value.

Another factor to consider if you are purchasing a farm is that the bank will may only loan you money based on the value of the portion that is the residence. In other words, they consider farming a business, so that would make a loan on the farm a commercial loan rather than a mortgage. That means that the rate could be higher, the term shorter and the percentage less.

**Article from the archives of the American-European Real Estate Group**