How to Finance a Home in Costa Rica – the Cheap & Easy Way!

1. How to Finance a Home in Costa Rica – the Cheap & Easy Way

2. Have you ever heard the expression, “Cheap, fast, and good. Pick two.”? That’s financing a home in Costa Rica. To be fair, this maxim largely holds true around the world. In anything, you’re rarely going to find cheap and fastand good. Cheap and good? Sure. Fast and cheap? Could be. Fast and good? Also a possibility. But all three? That’s a true rarity. And, for the most part, that’s the long and the short of financing in Costa Rica. But, we’re going to throw in a fourth item: Easy. The bad news is that financing a home in Costa Rica is rarely simple/easy, although it has gotten a lot more straightforward than it used to be.

3. Financing a Home in Costa Rica It used to be that Costa Rica was an all-cash-deal kind of place: You brought 100% of the purchase price to the table, and that was the only way to buy. Financing did not exist, at least not for foreigners. And even for residents and citizens, it was so tricky it nearly bordered on impossible. Things have changed, and for the better. Today, loans are available to everyone: citizens and residents, as well as non-resident foreigners. In fact, almost all of Costa Rica’s private and public banks offer some level of mortgage or loan program designed for foreign investors. And, as with what you’ve probably experienced back home, they’re usually offered in 15-, 20- or 30-year loan packages.

4. But – and you knew there would be a but, right? – the catch is in the down payment. Unlike in, for example, the U.S., Costa Rican banks require a 35% minimum down payment for a second-home purchase. This required number can even run as high as 50%, depending on the bank and your specific circumstances. What’s more, interest rates in Costa Rica usually run 7-10% for U.S. dollar loans. For Costa Rican colones loans, you’re looking at 15-20% interest rates. You should also know, there’s quite a bit of hoops to jump through and paperwork to sign, including international credit checks, a home appraisal (completed by the bank, though costs come out of your pocket), verification of your income, opening of a local bank account, and other requirements. But, bottom line: Fifteen years ago, it was nearly impossible for foreigners to get a home loan. Today, it’s very possible, if you’re willing to learn the process. (And have a few months to spare.)9+

5. Alternative: Home Equity Loans

6. Second mortgages, aka home equity loans, are another great option to finance a home in Costa Rica. (Note: You’ll take out a home equity loan in your own country, not in Costa Rica). Long story short, it’s a loan issued by your existing bank, borrowed against the equity (= sales estimate minus remaining debt) of your current home. As an example, let’s say you purchased your primary home for $450,000. You put 20% down ($95,000) and have already paid off $150,000 in mortgage principal. What’s more, over the years your home value (estimated sales price) has increased to $525,000. Your total home equity is $95,000 (down payment) + $150,000 (paid principal) +$75,000 (increased value) = $320,000. A home equity loan, combined with your down payment savings, can often pay off the full purchase price of a home in Costa Rica. As a bonus, it’s a very low-headache type of financing, as it’s through your home bank and via processes you already understand. (Also, in English!) Additionally, a home equity loan is not contingent on the home you wish to purchase: you’ve already earned the equity, so the bank is more likely to lend the money.

7. Finally, with a home equity loan, your bank will give you immediate access to cash. And, while loans are more common in Costa Rica, cash is still king. As a cash buyer, you’ll occupy a much better position in the Costa Rican real estate market. Final note: If you plan to get seek standard financing, you may want to contact a Costa Rican mortgage broker, who works to secure financing via international (not just U.S.) banks. As we mentioned above, there are a ton of hoops to jump through with local banks, and a mortgage broker can be faster, easier and even less expensive than obtaining a local mortgage.