The global financial crisis has limited the access to home loans around the world. Banks in Costa Rica appear healthier than some in the United States, but they have also needed some recapitalization.
During the last few months of 2008 Costa Rica has experienced a lending freeze however some institutional lending is becoming available again, but sparingly. Institutional lenders in Costa Rica require strict DTI (debt to income) ratios, charge high origination fees, and their interest rates can be double that of mortgages in the United States.
Although bank loans are not a huge part of the foreign-buyer real estate market in Costa Rica, the deficiencies of institutional mortgages has led more sellers in Costa Rica to consider owner financing and more creative deals in general.
Some price softening and term flexibility has been evident, albeit primarily from highly motivated sellers. Consequently, there are some wonderful homes now available with seller financing, or at more affordable prices. This is evident of a growing buyers’ market.
Our area of Atenas is by no means over-run with inventory, but many sellers are willing to be more flexible given the dismal state of their U.S. investments. Owner financed deals have become a win/win situation for both buyers and sellers. Sellers can get a healthy interest rate secured by their real estate, and buyers now have more financing options than previously available.
When buying with owner financing, the process remains the same. Full due diligence with a title search is still required. Even though the financing deal may be between the buyer and seller, it does not mean that a lawyer should not handle the transaction. Some would say it’s even more important to have your own lawyer (not the seller’s) when buying with seller financing.
There are some considerations when buying with owner financing, such as the extra cost (2-3%) for drawing up and registering a mortgage against the property. Interest rates can range from 6% – 15% depending on the seller’s circumstances.
The average interest rate for private loans in our area seems to be around 10%. In addition, some sellers require personal guarantees or friendly foreclosure clauses (where buyer agrees to forfeit the title, without a legal fight, if the payments are delinquent for a certain period of time).
The main benefit of negotiating a seller financed deal is that the terms can be shaped or customized to fit the buyers and sellers needs. Although some sellers advertise certain specific terms, they are usually quite flexible to meet the needs of the buyers. Another benefit is that the deal can be closed much quicker and with far less paperwork than required with institutional financing.
It is also very important to work with a competent real estate agent who is familiar with the structure of an owner-financed deal. This experienced professional should help negotiate a win/win situation for both parties, while ensuring that both parties have their interests protected in the deal.
Considering The Atenas Area For Your Home In Costa Rica?
The AARP (American Association of Retired Persons) ranks Atenas as one of “The Best Places to Retire Abroad.” For more information about homes and land for sale in the area please contact our Recommended Realtors in Atenas by using the simple form below:
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