New! – Conventional Mortgages for Costa Rica Expats

The usual answer for the question, “can I get bank financing in Costa Rica?,” has been a resounding no.

However, that might be changing!

We had the good folks from ScotiaBank Costa Rica come and give our agency a presentation recently on the topic of their new program for granting mortgages for Costa Rica expats (non-residents).

The ability to actually get a 20 or 30 year conventional mortgage as a non-resident would be a welcome change. The Costa Rican real estate market has been a predominantly cash market, with the only real opportunity for financing coming from the sellers of properties themselves. Usually such seller-financing is available, if at all, only for a short term of 3 to 5 years, at simple interest rates of from 5 to 8%. The terms are completely up to the negotiation between buyer and seller.

From what I was hearing there are a few “catches” with regard to ScotiaBank’s new mortgages for Costa Rica expats program…

These loans are only available to non-residents that meet certain criteria. Probably of most importance is that a non-resident with less than 6 months in Costa Rica can only apply for a mortgage for a vacation home and not a principle residence.

The initial interest rate would be fixed for three years at 8.5%. Afterwards, it would be a floating rate pegged to the New York prime, plus 2.5%. With fixed rate mortgages currently under 5% in the U.S., this dollar rate of 8.5% is quite high and not a fixed rate. Could it go lower than 8.5% in the future? The answer I got was yes, but of course it could also go higher, much higher. In fact, there is no ceiling as to how far it could go!

The terms for these mortgages range from 20 to 30 years, depending on factors like time in (and ties with) country and credit worthiness. You would have to submit a U.S. credit report if no credit had ever been established in Costa Rica. And for practically all non-residents, that would be the case.

The loans can be prepaid without penalty, but only after two years of amortization. Prepaying a loan in the first two years would incur a 5% penalty.

There is an income requirement of at least $5,000 per month. It also matters what percentage of monthly income is for payment of any currently existing mortgages or debts, but I was not completely clear on those percentages. You would have to prove income with tax returns, social security receipts, and the like.

Loan-to-value ratios range from 60 to 80%, depending on a number of factors. The properties will have to be professionally appraised and the “value” in the LTV ratio will be the appraised value. I can see this being a problem in many deals, as often the purchase price and the appraised value will probably not coincide.

Also, the bank will not lend for certain types of constructions, for example stick-built homes. Most homes in Costa Rica are concrete block, or concrete pre-fab, but these days newer and lighter methods of construction are being used and homes are being built in our area with Chilean pine, which is apparently completely insect resistant. However, a Chilean pine-built home would apparently not qualify for a loan. That sucks because the pine homes I have seen have all been spectacular.

Loans would be extended for construction, as well as already built homes.

I asked the question of whether any mortgages for Costa Rica expats had been extended so far, to which I received the quick retort, “of course they have.” However, none of us Coldwell agents have had any experience with this so far. I will be interested in seeing how accommodating this bank will be to our customers. I have found Costa Rica banks to be overwhelmingly bureaucratic and I would imagine the process of getting a non-resident mortgage will be challenging, to say the least.

The advent of conventional mortgages for Costa Rica expats could have a dramatic impact on the Costa Rican real estate market. I am sure if one bank has success with this others will quickly follow suit. One of the “brakes” on this market has long been the fact that such mortgages weren’t available. It is only a small percentage of wannabe expats that have the kind of cash laying around to buy a property in Costa Rica for $300 to $500K, or even more!

I am of course excited about this new development, but will be reporting in the future as to the actual practice of granting these loans and whether or not it indeed is practical enough to make a difference for the investing appetite of the average North American.