One of the most popular questions I get, is in relation to financing in Costa Rica. In general terms, Costa Rica is a cash market. Occasionally sellers offer owner financing. Below I discuss the various options available if you currently are not in a position to pay all cash.
Approximately 10% of sellers in Costa Rica offer seller financing. Typical terms are 50% down, 3 year term at 7% with a balloon payment at the end of the term. Generally sellers will not require any income statements or do any credit checks. A one time loan processing fee of approx 2% is paid by the borrower. There is also a hidden cost because often the seller will offer a better discount for a cash deal
North American bank financing
Banks in your home country will only approve a mortgage secured against a property in your country. The time and risk of foreclosing on a Costa Rica property does not make sense for them. The best option in my view is to refinance a property at home, and be a cash buyer in Costa Rica
Hard money loan
There are individuals in Costa Rica who offer hard money loans. Typical terms are 50% LTV, 9-13% interest, 5 year term (or up to 15 years in some cases) . They may also charge an origination fee of around 3%. Also they are very conservative on the valuations, so although they publish an LTV of 50%, often the ‘V’ is lower than you expect. Over the years I have had many clients using this option, so I am happy to provide you with more details. The interest rate offered will depend on the quality of the property, and the overall perceived risk.
Use your Retirement funds (US – 401k or IRA funds. Canada- RRSP)
It is possible for Americans to use their 401k or IRA funds to purchase Costa Rica property, subject to certain conditions. Likewise, Canadians can use their RRSP portfolio. They can be used to purchase income producing properties in Costa Rica such as:
A condo generating income through airbnb
A house rented long term, or for seasonal rentals
A bed & breakfast
You should discuss the options with your advisors as the conditions change frequently. But bare in mind some advisors will not have experience using the funds for overseas purchases, and others will be reluctant to lose control of the funds, so it is best to get a second opinion.
Costa Rica bank mortgage
There are 2 private banks, Banco Nacional and BCR, and many private banks, including Scotia, BAC, Improse, Lafise. Traditionally the private banks have offered better service, more bilingual, but the gap has closed in recent years. Interest rates for a resident or a Costa Rican are Prime rate plus 5= 8%+. Offering up to 90% LTV depending on many factors. That said, for a foreigner, on a 90 day tourist visa or a temporary residency I have never heard of a successful outcome for a mortgage, even though the banks will initially say that it is a possibility. Scotia bank is advertising that they have loans for foreigners, but be prepared for a long drawn out process.