As Costa Rica’s leading source for mortgage financing, we field numerous daily requests from people in all stages of property acquisition and ownership in Costa Rica.

Most inquiries come from North Americans who’ve received financing previously but never in a foreign country. Consequently, their investigation of financing in Costa Rica generally revolves around understanding how it differs from their prior North American transactions.

Only two years ago there were no conventional financing programs available for foreigners in Costa Rica. Since then, several institutions have entered the market and programs continue to evolve quickly in an increasingly competitive environment.

The dimensions on which one can evaluate the differences between North American and Costa Rica residential financing are:

  1. Interest Rates
  2. Closing Costs and One Time Fees
  3. The Process from Application to Close
  4. Program Structures
  5. Borrower Eligibility

The following is the second of a five part series where we’ll contrast residential home financing in the US vs. Costa Rica accordingly.

Costa Rica Closing Costs and One Time Fees. Closing costs are expensive… even for Costa Rica.

The most common “surprise” to those obtaining Costa Rica Financing are the one time fees associated with closing their loans. Many people believe closing costs to be sharply higher in Costa Rica than in the US. As in the US, these costs can be taken out of loan proceeds and financed within the mortgage if the Loan to Value threshold is not exceeded. Financing closing costs is an option which can mitigate the need to bring a checkbook to closings.

Though Costa Rica financing is, in fact, more expensive than mortgage financing in the US, the “surprise factor,” however, with closing costs is primarily a function of visibility. Much of the cost incurred by US borrowers which is priced directly into their loans and not visibly paid upfront as a lump sum. A comparison of closing costs in Costa Rica vs. the US and some insight into the differences are as follows:

  • Bank Commission/Points: This is generally the primary point commented on by borrowers, as Costa Rica Lenders generally charge 1.5% – 2.5% bank commission at closing. Key points to realize, however, include:
  1. Bank commission in Costa Rica reflects the cost of significant lender risk which most US banks will not incur for any price. Significant benefits which foreign borrowers enjoy for this added cost in Costa Rica, not available in the US, include:
  2. Property can be held in a corporation, reducing the liability typically associated with home ownership.
  3. There is no reporting to US credit agencies for loans from Costa Rican banks. Mortgage debt will not impact your ability to borrow in the US. Late payments will not impair your credit rating.
  4. There is no personal recourse in the event of a default.
  • Many programs offered in Costa Rica do not have prepayment penalties as is typical in the US. The bank commission often reflects the financial cost (often a loss to the bank) of loans which are paid off in one to two years.
  • In the US, lenders price loans individually (interest rate and points), based on a variety of factors. Once a “par price” is quoted for a loan, borrowers may “buy down points” by trading off interest rate for bank commission/points. In Costa Rica, lenders have just begun to vary terms based on individual borrowers and loan parameters. However, they generally price their overall loan programs at a macro level and do not offer borrowers the ability to “buy down points”, as is widespread practice in the US.

Title “Protection” Policies: Unlike in the US where banks mandate it, Title “Insurance” is not required by many Costa Rican banks. Lenders in Costa Rica generally do their own title work and part of the bank commission charged reflects their cost of self insuring the risk of title problems.

Banks are generally confident that the title research performed by their attorneys is as thorough as could be performed by a third party and understand the different limitations of title “policies” available from the four firms currently offering them in Costa Rica. Title protection policies from the four current providers range in cost from .25% to 1% depending on the provider and the channel through which it is purchased.

Two out of four current providers of “Title Protection” policies in Costa Rica offer mortgage broker services and are promoting them to grow revenue and market share. The “Title and Escrow Services” firm most currently active in seeking mortgage business publicly misrepresents bank policy where Title Guarantee is concerned and informs customers that it is a bank requirement when it’s not.

Even when the banks require “Title Guarantee”, it is only required to cover the amount of the loan. This “Title and Escrow Services” firm requires their mortgage customers to purchase a policy based on the full purchase price. There are no laws in Costa Rica which require them to fully disclose lender policies, as there is in the US.

At Costa Rica Mortgage, we do not sell any products or services other than mortgage brokerage. We do not advise our clients on whether they should purchase “title protection” or from whom. We do, however, fully disclose what a lender requires in terms of “Title Protection”.

Legal Fees: Costs for mortgage legal expenses can be much higher in Costa Rica, as legal fees are typically charged on a percentage basis rather than a flat fee. Consequently, the difference in legal costs, between a US mortgage transaction and a Costa Rica transaction will vary commensurately with loan size.

Mortgage Brokerage: 64% of US mortgage transactions are facilitated by Mortgage Brokers, as borrowers generally understand that by using a competent broker, they’ll save significant money, time and hassle. The going rate for mortgage brokerage services in Costa Rica is 1.5% which is generally lower than earned by brokers in the US. At Costa Rica Mortgage, we believe we provide disproportionate value to every client for our fee on many dimensions.

In the US, the mortgage industry is a highly regulated, evolved and systematized industry. Though borrowers generally don’t have direct visibility to more than 1% mortgage brokerage commission on their closing statements, brokers in the US typically earn between 2% and 5% on every loan.

US mortgage brokers are mostly compensated by lenders through rebates and “yield spread”, where they can earn extra commission by selling loans at a higher rate than the bank proposes (par price) for an individual loan. Borrowers pay much higher broker commissions in the US than in Costa Rica; however, they pay it monthly over many years.

The lending industry is maturing rapidly in Costa Rica and there will come a day when brokers are compensated by lenders. However, broker compensation in Costa Rica is thus far limited solely to fees paid directly from borrowers.

Property Transfer Taxes and Legal Fees: These are paid at closing when the financing is associated with a property purchase. Depending on the means of transferring ownership, the cost of title transfer in Costa Rica can be much higher than in the US, as transfer taxes and legal fees are costly. However, if a property is held in a corporate name and the buyer acquires the property through transfer of corporate shares, the cost of Tax and Legal fees for acquisition can often be less than in the US (depending on the property, sales price and state).

In whichever manner that ownership is transferred, however, the associated costs have nothing to do with the cost of financing and should not be construed as such.

We strive to serve our clients as financial consultants. We know that providing complete, unbiased information and transactional transparency will generate greater profitability than salesmanship for our company over time.

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