Lake Arenal, Costa Rica, real estate for sale
New Information about Mortgage Financing in Costa Rica
by Laura Murray from her blog at www.lakearenal.blogspot.com
Over the years that I have spent working in real estate in Costa Rica, the process of securing financing for non-Costa Rican people has evolved from not being available at all unless you found it through a private source, to being available but difficult to process, and then to what we have now: Mortgage brokerages with highly organized processes and systems which allow you to shop for the right finance package to fit your unique needs.

Loans on property in Costa Rica are, of course, not the same as what we in North America are used to receiving. The rates are a bit higher, as are the loan origination fees.

You can expect interest rates on your loan(s) to be from 7.75 percent to around 9.5 percent, depending upon the type of borrower and the type of loan, i.e., construction vs. purchase, credit score, etc. You can also find many different variations of loans such as adjustable rates, fixed rates, 3 to 5 year loans, and even some loans which are fixed for twenty and up to thirty years.

In preparing to secure financing on your Costa Rican property purchase, you will need to organize most or all of the following documentation:

Purchase Agreement (or Earnest Money Contract). A copy of the Earnest Money check is a good idea, as well.

Copy of the passport(s) and driver's license(s) of the Purchaser(s).

Loan application, completed and signed.

W-2's for the past 2 years (wage earner only).

All pages of all Liquid Asset account statements for 6 months (checking, savings, 401K, mutual funds, stocks, etc.) to prove source of down payment/reserves. 12 months statements are required for international lenders.

2 months of pay stub copies (wage earner only).

Past 2 years of tax returns.

If you are self-employed or your commission earnings exceed 25 percent of your gross income, you will also need: Corporate/Partnership tax returns, with all schedules attached, for the prior 2 years; Profit and Loss Statement for year to date (signed and dated); and Balance Sheet for year to date (signed and dated).


Note: If there is any other documentation that would be helpful in speeding the loan process along, please supply that information as well. Such information may include documentation on a Costa Rica corporation (Sociedad Anonima) if you have one, survey plans, folio real numbers, construction plans, documented proof of alternative sources of income including award letters for pension and/or Social Security, rental income/agreements, etc.

The above 8 items are necessary for our mortgage brokers to begin to process your loan application. After the loan application process has begun, you will then need to provide various other documentation, depending on the type of loan that you have applied for. Some of these items might be:

Appraisal: Appraisal of the property, done by a bank-approved appraiser. Appraisals generally run between $400-$800.

Title insurance: Title insurance is required by some lenders. The general rule of thumb on the cost of title insurance in Costa Rica is that title policies range in price from 0.7 percent to 1.0 percent of the value of the loan.

Life Insurance: Some lenders in Costa Rica require a life insurance policy equal to the value of the loan (in some cases lower than that) and it must be in place before the loan closes. If you currently have a policy from your country of origin, that policy can be used if equal to or over the amount of requested financing, but the lender would need to be made beneficiary equal to the loan amount. In the case that you do not have a life insurance policy and it is required by the lender, you must request a policy from a provider in your home country. Sometimes this involves having a medical appointment and the policy must be underwritten as well. If this is required, we suggest that it be expedited immediately to avoid delaying the loan closing. We, of course, will assist you in this process.

Home or Hazard Insurance: Home or hazard insurance (one and the same) must be placed on the home, as it is required by all lenders. We will assist you in securing this insurance during the loan process. You can expect this policy to cost around 0.0026 percent of the property value per year. For example, if your home in Costa Rica is worth $100.000, the policy cost per year would be around $260.

Municipal Taxes: You will need to certify that the municipal taxes are up to date. This is normally provided by the seller of the property. Property taxes in Costa Rica run about 0.0025 percent of the value of the property. For example, if your property is worth $100,000, the property taxes per year would be around $250.

The Closing: To close on your loan, you either need to be here in Costa Rica to sign the loan documents, or you will need to provide a power of attorney for it to be done on your behalf. This power of attorney is more complicated than the special power that people often give their Costa Rican attorney in order to close on a non-financed property in Costa Rica, so we will need to pay particular attention to this detail during the loan process. We will be happy to assist you with this.

General Closing Costs:

Bank and Broker Fees: The bank and mortgage broker fees (known commonly as origination fees) will range between 2.5 percent and 3.5 percent of the loan amount. This may seem high to those of us who have grown accustomed to "no points" loans, but I can assure you that even your "no points" loan had hidden costs.

Transfer and Documentation Fees and Stamps: These fees and stamps range between 2.5 percent and 3.0 percent of the value of the property. However, and this is a very important point: If the property you are purchasing is in a Sociedad Anonima (Costa Rican corporation) and the seller of the property passes the shares of that corporation to you at closing, there are no transfer taxes or fees. We will assist you and the seller in doing this, thus saving you up to 3.0 percent in fees.

Mortgage Registration Fee: 0.10 percent to 0.25 percent of the loan amount.

Trust Fund Management: If the lender requires that the property be placed into a trust for the life of the loan, there will be an annual fee of $100-$250. Not all lenders require this step, however.

Some Additional Information:


Credit Scores: Credit scores must be above 680. We have access to one lender who will use credit scores down to 650. If your credit score is not above 680, we have ways to assist you in boosting your credit score.

LTV (Loan to Value--what you can borrow against the property purchased) Levels: Home or Construction:

- up to 80 percent for Wage Earner

-up to 75 percent for Self-Employed

-up to 90 percent for outright purchase on a case-by-case basis. Restrictions apply.

Land Only: 60 percent, Wage-Earners and Self-Employed. (We do have one lender who will lend up to 75 percent on land.)
DTI (Debt to Income) Ratio: 25 percent for housing (up to 30 percent in some cases), and up to 45 percent total (housing and other debts).

Application Fees: These vary from broker to broker. We are constantly working on the negotiation and organization of these fees. We advocate that the borrower first run an inexpensive credit report before actually paying an application fee in order to avoid this expense if the credit report comes back showing that the borrower is obviously not a candidate for a mortgage in Costa Rica.

Okay, friends, sorry to be so long-winded this time, but I have been getting a lot of requests for information on financing here in Costa Rica, so I thought I would provide you with all that I know. I am constantly updating myself in this area and will continue to update you as well.

And, as always, please feel free to contact me with any questions that you might have.

Pura vida,

Laura Murray

US Phone:(318) 239-9990 Costa Rica Phone: +506-2694-5000   
Founded by a Broker previously licensed in Colorado and Washington