Your 2024 Guide to Real Estate Financing in Costa Rica

For those envisioning a slice of Costa Rican paradise as their own, questions regarding financing options, mortgage accessibility, and investment viability are paramount. This comprehensive guide seeks to unravel the intricacies of real estate financing in Costa Rica, addressing key questions that prospective buyers might grapple with. From the nuances of securing a mortgage as a foreigner to the various financing alternatives available, we delve into the intricacies of down payments, interest rates, and the broader landscape of real estate investment in Costa Rica. 

Can you get a mortgage for a home in Costa Rica?

Foreign Challenges

Getting a mortgage for a home in Costa Rica as a foreigner poses significant challenges. Unlike in the buyer's home country, Costa Rican banks lack access to crucial information like residency status, work history, and financial track record. The language barrier adds an extra layer of complexity.

Conventional Property Loans

Most foreigners opt for conventional property loans from their home country's banks. These loans are preferable due to the banks' ability to verify residency, work history, and financial stability.

Financing Options

Borrowing from Home Country

Buyers requiring financing often explore borrowing from their home country, leveraging equity in their residence, tapping into insurance funds, or using their IRA. This option allows buyers to bring cash to Costa Rica to make their real estate purchase.

Private Banks in Costa Rica

Private banks in Costa Rica, including Banco Lafise, Bac San Jose, and BCT, now offer financing to foreigners for vacation homes. Terms usually include up to 20 years, a 30-50% down payment, and interest rates ranging from 8.5% to 10%. This option can be quite involved and time-consuming and can put a strain on real estate deals depending on the situation. These banks also tend to have low property evaluations, which can make this option less appealing.

Private Lenders

Private lenders are another option, requiring property evaluation, bank statements, proof of income, and source of funds. Terms vary, with financing up to 70% of property value, up to 15 years, and interest rates from 8% to 16%.

Seller Financing

Sellers may also offer financing, providing flexibility with documentation and requiring no property evaluation. Typical terms include 1-3 years, interest rates of 6-9%, and a +50% down payment. Various payment structures exist, allowing negotiation of terms.

What are the different real estate financing options available in Costa Rica?

Mortgage Costs

The person receiving financing usually covers mortgage costs. These costs can be part of the sale closing or a separate agreement. Mortgage within a transfer deed incurs 0.25% registration fees and around 0.53% documentary stamps. Notary fees for drafting the mortgage instrument range from approximately 0.50% to 1.25%.

Closing Considerations

During due diligence, consult with the attorney to determine total closing costs, including appraisal fees, administration costs, mortgage costs, and any other potential charges.

Advantages of Offering Private Home Financing

Costa Rica's properties are in high demand, attracting global buyers seeking a charming and unadulterated environment. However, due to low liquidity, some buyers may not have immediate access, making private financing an attractive option.

Seller Expectations with Private Home Financing

Sellers offering private financing have fewer documentation requirements than banks. They may request proof of income or a credit report but often place less emphasis on property evaluation. Sellers choosing financing incentives forego immediate cash sales but they usual require full-price to make this option worthwhile.

Typical Terms of Private Home Financing

Short-term financing is in demand, with typical terms including a 1–3 year term, interest rates of 5%–8%, and a minimum 50% down payment. Buyers agree to pay close to full price in exchange for financing, and payment terms can be monthly, quarterly, bi-annual, or annual, with capital payments due at the end.

Mortgage Costs and Other Financing Options

One receiving private financing usually covers mortgage costs (0.25% registration fees, 0.53% documentary stamps). Zero-interest private financing is observed in favorable scenarios. Other financing options include obtaining a line of credit in the home country or using private financing companies like Loans Costa Rica.

Considerations Before Offering Seller Financing

Sellers need to understand the buyer's situation before agreeing to finance. Key considerations include the buyer's ability to meet payment obligations and the intended use of the property. Terms may be contingent on the buyer accepting the property "as is" after the due diligence period.

Securing Transactions and Seller's Decision

Sellers use a mortgage (trusts less common) to secure transactions; in case of default, the property goes to auction or back to the seller. Offering home financing remains a rare option, with increased popularity in the last ten years. With the right terms, financing enhances a property's marketability, making it accessible to buyers with low liquidity. It's not a customary practice, and the decision to offer private financing depends on individual negotiations for a win-win solution.

Do you have to pay cash for a house in Costa Rica?

Builder or Developer Financing

Some developers offer in-house financing when buying directly from them. However, due diligence is crucial, and working with a reputable licensed real estate agent and a first-class law firm is advised.

Creative Short-Term Financing

The global strength of the market prompts buyers to consider creative short-term financing. Waiting to sell their property back home may result in missing out on good deals in Costa Rica. Using cash from a 401k or stock market investments is a common approach, considering market uncertainties. The strong rental market in Costa Rica allows covering monthly costs through vacation rentals managed locally.

Finance using a Self-Directed IRA

Utilizing a Self-Directed IRA is an easy way to purchase investment property in Costa Rica. Converting the current IRA or 401k into a Self-Directed IRA provides control over investments. The rollover process is straightforward, and there are companies in the USA offering information on Self-Directed IRAs.

Equity Line of Credit in Home Country

Tapping into equity in North American property is a simple financing option. An equity line of credit with the home country bank is accessible for many buyers. Financial firms like Schwab offer loans against stock or investment portfolios at low rates.

Long-Term Planning with Vacant Lots

Buyers anticipating spending time in Costa Rica in 3 to 5 years but wanting to capitalize on the current market often consider purchasing a vacant lot. This is a cost-effective option with minimal carrying costs. In the future, buyers can hire a builder to construct their dream home on the purchased lot.

What is the minimum down payment for a house in Costa Rica?

Private Banks

Private banks in Costa Rica, such as Banco Lafise, Bac San Jose, and BCT, typically require a down payment ranging from 30-50% for financing options. The terms may include up to 20 years and interest rates ranging from 8.5% to 10%.

Private Lenders

Private lenders, on the other hand, may offer financing with a down payment of up to 70% of the property value. The down payment and other terms can vary, and interest rates may range from 8% to 16%.

Seller Financing

Seller financing, being more flexible, often includes a down payment of at least 50%. The terms can range from 1 to 3 years, with interest rates between 6% and 9%.

What is the interest rate for mortgages in Costa Rica?

The average mortgage credit interest rate in Costa Rica, according to data available from 2001 to 2023, is 14.04%. The range has fluctuated between 6.11% and 26.28%.

Private Banks

Private banks offering financing to foreigners typically have interest rates ranging from 8.5% to 10%.

Private Lenders

Private lenders may provide financing with interest rates varying between 8% and 16%.

Seller Financing

Seller financing often comes with interest rates in the range of 6% to 9%.

Is real estate a good investment in Costa Rica?

Rising Demand

Costa Rica's properties are experiencing high demand, attracting global buyers seeking a charming and unadulterated environment.

Market Access

Private financing options are crucial for some buyers with low liquidity, making properties accessible to a broader range of potential buyers.

Seller Perspective

For sellers, offering private financing can accelerate listings for faster closings and improved terms, despite the lesser emphasis on property evaluation.

Long-Term Viability

Various financing options, including private financing, builder financing, and creative short-term financing, contribute to the long-term viability of real estate investments in Costa Rica.

Final Reflections

Financing real estate in Costa Rica offers a variety of options, each with its own advantages and considerations. From navigating the challenges of getting a mortgage as a foreigner to exploring private financing, buyer and seller expectations, and alternative financing sources, individuals interested in Costa Rican real estate have a spectrum of choices to consider. Understanding the nuances of each option and working with experienced professionals can help make property dreams a reality in this tropical paradise.