The decision to apply for two mortgages turned out to be a sensible one and ultimately resulted in significant savings.
The initial mortgage offered was to be up to 85% of the value of the property depending on the home with a 25 year mortgage fixed for the first year at 7% then 8% in years 2 - 4 and then the three month LIBOR plus 3.75 for the remainder of the term. Plus the bank was to take a 2% commission in addition to the usual legal expenses.
At the end of the day in May 2007, playing one against the other, we managed to negotiate a five year fixed at 7.2% and pay only 1% in commission and that discount alone saved my client nearly US$3,000 in bank commissions never mind the longer term savings because of the lower interest rate.
All of this was finalized before the bank did a valuation on the home but, since BAC San Jose had already had a working relationship with this particular developer we felt confident that they would come through with a more favorable valuation (from our standpoint) than Banex who did know him so well.
The Valuation of the Home:
The valuation is done by a 'perito' an 'expert' in valuations (not to be confused with perrito which is a little dog) and he reported back with a valuation of US$285,000 which was considered too low by the bank probably because there have no homes sold for this price in this project for quite some time.
The second time around, the evaluation came to US$325,000 so:
- House Valuation - US$325,000
- Mortgage Amount - 85% = US$276,250
- Minus Commission & Legal Expenses = US$5,820
Which leaves US$270,430 and since the sales price is $310,000 that would leave our client to find US$39,570 which was not a problem but since Banex told us that they would probably be able to finance US$300K we asked BAC San Jose if they could be a bit more flexible...
What Was The Final Deal?
After waiting patiently for a five days when we were told each day that they would call us "mañana" (tomorrow) they agreed to the following improved terms:
- House Valuation - US$325,000
- New Mortgage Amount - 90% = US$292,500
- Minus Commission & Legal Expenses = US$4,961.48 = US$287,538.52
Which leaves our client to find only US$22,461.48 instead of US$39,570 which he would have had to find if they had only agreed to 85% instead of 90%
The initial mortgage offered was to be up to 85% of the value of the property and we ended up with 90% and the final interest rate is 7% for the first five years followed by three month LIBOR plus two points for the remainder of the term. Plus the bank agreed to take a 1% commission and reduced legal expenses.
We negotiated a financing, a much better interest rate, less commission and less expenses so my client is very happy.
For those of you that speak Spanish fluently, you can see the Spanish mortgage agreement here.
Time Spent Applying & Finalizing this Costa Rica Mortgage:
- The first emails inquiring about the mortgage terms with a variety of banks were sent out on 2nd February 2007. Everything that was requested of my client was done the same day or the following day, so there were no delays with regards to what the client was expected to do.
- The mortgage was finally approved (without the formal valuation) by two banks on the 7th March 2007
- The valuations were done during the week of 12th March 2007, we finalized terms on 21st March 2007 and...
- The first closing appointment with eight people present was arranged for 26th March 2007 and we all showed up but could not finalize the deal because the official legal representative of the corporation that owns the new home had resigned his position and the seller's attorney then had to legally prove with official documents that the new legal representative had the powers they said he had. The gentleman selling the home was livid (to put it mildly) with his attorney.
- The second and final closing was done on the 27th March after going through quite some time confirming the appointment. The previous day they had confirmed a 4pm appointment, then on this day, the seller's attorney said it was at 4pm, the bank's attorneys said it was at 6pm and we finally met at 6pm and left at 7.30pm. .
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Mortgages For Non-Residents of Costa Rica Are Not As Easy To Find:
That's the good news, the bad news for some people is that some banks will only consider mortgages for legal residents of Costa Rica. They will not consider mortgages for tourists or 'perpetual tourists.' (People who leave the country every three months).
Please note that mortgage terms and conditions in Costa Rica vary widely between banks and some have strict internal policies that will favor permanent legal residents over temporary residents. Some banks prefer not to offer mortgages for homes at the beach which they often consider much riskier than in and around San Jose.
In the meantime, if at all possible, we would encourage you to explore any and all financing options in the USA before resorting to applying for a mortgage in Costa Rica which are invariably much more expensive.
Written by Scott Oliver, author of How To Buy Costa Rica Real Estate Without Losing Your Camisa and Costa Rica's Guide To Making Money Offshore.
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