Home financing in Costa Rica is a topic that is being asked about more frequently by buyers contacting our Osa Tropical Properties real estate office. The thing is, there is not a simple and straightforward answer. Buying real estate in Costa Rica with cash is still the easiest and best option. Cash gives buyers the strongest negotiating position when presenting an offer. On the other hand, those expecting to buy a property in Costa Rica with a loan are likely to be disappointed by the term options, which all have high interest rates and short durations. But private home financing offered by the seller is a third option that falls somewhere in between and it can actually be favorable to both buyers and sellers in the right circumstances. Below is a detailed guide to home financing in Costa Rica for both sellers and buyers to discover if this approach is right for them.

The Advantage for Sellers to Offer Private Home Financing in Costa Rica

Costa Rica properties are in hot demand right now from people all over the world who want to move somewhere new that is charming and unadulterated. But these properties are not available immediately to everyone who wants to purchase them. Some potential buyers are stuck in a low liquidity scenario where they need to sell their current residence to purchase their dream property in Costa Rica.  Home sellers who are able to offer private financing are turbo-charging their listing for faster closings and better terms. These sellers are typically in a position where they are not reliant upon receiving an immediate influx of cash from the sale of their Costa Rica property. Sellers who finance are able to set their own terms that may include significant financial windfalls from the loan interest rates over a short amount of time but still be win-win for both parties.

Seller Expectations When Offering Private Home Financing in Costa Rica

Private seller financing became an alternate option for buying property in Costa Rica because the process for getting a mortgage with a bank in Costa Rica is arduous. To apply for any loan in Costa Rica requires the translation and verification of all of your financial records from anywhere you have lived. Sellers offering private financing tend to have lesser requirements for the type of documentation they expect to see. They will not likely request an evaluation of the asset because they know the value of the property that is being leveraged. Some sellers might request proof of income or a credit report, whereas others will not. Sellers who choose to offer financing as an incentive to close a sale are foregoing what would otherwise be a cash lump-sum sale. The flexibility of the seller’s financial position will determine the terms of financing that they are willing to offer, which can be more strict than a buyer may expect. The strength of the seller’s position, based on their property and the current health of the global financial markets, will determine if the seller’s financing conditions can captivate a hungry audience who need a small boost to make it to their pura vida.

Typical Terms of Private Home Financing in Costa Rica

Short-term private home financing is on demand with many buyers looking for the easiest way to buy their dream home. The typical terms of private home financing in Costa Rica that most buyers and sellers find agreeable are: 

• Somewhere between a 1 - 3 year term;
• At an interest rate of 5% - 8% (has been know to be up to 12% in other parts of the country); 
• With at least a 50% down payment. 

In almost every instance, the buyer will agree to pay full price or very close to full price in exchange for finance. Terms can include monthly interest payments, quarterly, bi-annual or annual. Capital payments are always due at the end of the term of the loan but a seller could also negotiate for them to be paid regularly throughout the loan period plus one or two “balloon payments” throughout the term. There is always a clause for penalty on late payments, which may include the property defaulting to the seller. It is common that the one receiving private financing in Costa Rica pays the mortgage costs. These are equivalent to 0.25% of the value of the mortgage in registration fees and 0.53% in documentary stamps. The notary will also charge a fee for drafting the mortgage, which can range from around 0.5% to 1.25% of the mortgage amount. Our office has also seen one zero-interest private financing loan that worked out favorably for both parties. In this scenario, the buyer agreed to pay full price on the property, whereas a cash offer was likely to be reduced, and the seller was in the position of not needing a lump-sum payout.

Other Ways to "Finance" a Property in Costa Rica

A home buyer can finance a property in Costa Rica by getting a line of credit in their home country and paying cash for their tropical house. This option will give a buyer cash in hand, which gives them a better negotiation position. Cash offers traditionally result in better discounts off of the list price of a property. There are also private financing companies like Loans Costa Rica, which offer loans to local and foreign individuals, businesses, and corporations on real property in Costa Rica. The terms and conditions of these loans vary slightly depending on the type of property, loan to value, and the use of funds.

Things to Consider Before Offering Seller Financing

Sellers of real estate in Costa Rica will need to know the truth about the buyer’s situation before agreeing to finance. They will primarily want to know if a buyer will be able to meet their payment obligations and how the buyer intends to use the property during the term of the deal. A seller would also want to make sure that the terms of financing are contingent on the buyer accepting the property “as is” after the due diligence period — with no exceptions. Sellers offering financing in Costa Rica will use a mortgage to secure the transaction (we have also heard of trusts being used but they are far less common). In case of default, the property either goes to auction or returns directly to the ownership of the seller.

Should a Seller Offer Home Financing as an Option?

Although our office has been included in a number of deals using seller financing, it is still a rare option to which a majority of sellers will not agree. But these numbers have increased considerably in the last two years and we expect to see more deals like this soon with the growing demand for properties in Costa Rica. With the right terms, financing makes a property more sellable, putting it more within the reach of buyers with low liquidity. This does not mean that offering private financing in Costa Rica is customary and it is not our goal to advocate for financing one way or the other. Seller financing is a creative process that varies in each deal. Our goal is to help buyers and sellers uncover their individual needs, to see if we can negotiate a win-win solution for both parties.