Choosing a bank

If you are buying a new condo or home from an experienced developer, chances are he or she already has a relationship with a bank that has agreed to finance buyers. The advantage here is two-fold. First, a development that has been pre-approved for financing by a bank is a development that has been researched by the bank’s due diligence staff, which may include everything from title searches to reviews of the structure and value. It means that the building (or its progress, in the case of a pre-construction sale) is in good shape. It does not necessarily mean that the price you have agreed to is a fair one. While the bank hires an expert to estimate the value of the property in the planning stages, it will send a second expert to review the property before granting the loan, and that assessed value may be higher or lower than what the bank initially assessed and than what you had agreed to pay. By law, a bank must lend according to this official assessed value given by a perito, or property appraiser, usually an engineer.

If you need a mortgage and are not buying from a developer, you could shop around to different banks and see what kinds of offers they are willing to make. The banks mentioned above already have programs targeted to foreigners and, at least according to their advertising, should be willing and able to push their products to you. That, in theory, should mean they speak English as well. Be advised, however, that this method of finding a mortgage can lead to a major headache. Costa Rican banking has come a long way from the days when customers had to wait in line for hours to withdraw cash. But it’s still far from developed country standards of service.

This means you might have to wait in line for long periods of time. Phone calls will not be returned when promised, and E-mails and voicemails will go unanswered. You might find yourself wondering if the bank even wants to sell you its products. Of course, this dire scenario depends on the bank you work with, the amount of money you’re looking to borrow, and who knows what other factors. And there’s always a chance that, by some miracle, by the time you read this Costa Rican banks have overhauled their service platforms. They have, indeed, been improving over the years. Either way, if you decide to go this route, remind yourself to be patient and gently persistent, and read Chapter 16 on culture and doing business in Costa Rica for some extra pointers on how to deal.

The other option is to get a broker to do all this for you. Local mortgage brokering is something of a new field in Costa Rica, so there’s only one that we know of - Costa Rica Mortgage, S.A. (http://www.costaricamortgage.net/). Real estate brokers also act as mortgage brokers in some situations, but they’re probably not very well connected and won’t really be offering you the best deal. Mortgage brokers say they can get you better rates and terms than you yourself can find. Since Costa Rican business operates based on network connections, and even more so than other business markets, they might be right. Even if they can only get you rates similar to what that bank itself was offering, a broker will cut at least a few weeks off the process and take care of a potentially major headache.

Kinds of loans

Generally, the mortgages granted by banks cover the same things that mortgages in the United States and Canada cover, from new construction, to the purchase of an existing house, to additions, to the purchase of raw lots. Obviously the application requirements will be different, depending on what you want to do with the money. Some banks are more reticent to give loans for second homes, offering higher interest rates and financing less of the purchase price. Others simply won’t give loans for second homes. Such restrictions must be researched on a bank-by-bank basis.

Terms: Financing in Costa Rica will always be more expensive than financing in a developed country. The risk associated with lending in developing countries simply makes money more expensive. It also makes lenders much less likely to grant the kind of long-term, fixed-rate financing available to good borrowers in the United States and other developed countries. At this particular moment in history, the short- and medium-term outlook for real estate financing in markets closely linked to the United States is murky. It’s still not clear when that slowdown will reverse, or if (or how) it will adversely affect big lenders in developing countries. Therefore, the following guide to average mortgage terms offered by local banks is very much a guide, and subject to change without notice, depending on the domestic and international situation. Financing is almost always available to people with good credit.

Duration: Private banks can grant 15-, 20-, 25- and 30-year mortgages, depending on the borrower. It wasn’t until recently that private banks began granting the longer-term mortgages, in a bid to snatch market share from their public competitors. The caveat is, of course, the age of the borrower. In the United States, laws (supposedly) prevent lenders and employers from practicing age discrimination. Costa Rica has no such law, which is why “Help Wanted” ads regularly stipulate the preferred age/sex of applicants. Likewise, local private banks will not grant a mortgage whose length plus the age of the borrower add up to more than 75. This effectively puts local financing out of the reach of many retirees.

Rates: Interest rates on mortgages in Costa Rica are a bit harsh. To start with, they usually are 2-3% higher than U.S. mortgage rates. Rates fixed for longer than five years are generally not available. Also, once the rates start to float, most banks set the floor awfully high, either slightly below or at the introductory rate. Floating rates are usually between 2-4% above either LIBOR or prime. They adjust anywhere from every three months to annually. These mortgage rates will probably change by the time this book is published, but you can easily check the local rates yourself online. Go to www.bccr.fi.cr and click on Indicadores Económicos on the left-hand side of the page. In the window that pops up, click on Tasas de interés (interest rates). In the cascading menu that follows, you want to open Tasas de interés bancarias,Moneda extranjera, Vivienda, then click on bancos privados or private banks. The following screen will show you the average mortgage rate granted by private banks in dollars, calculated on a daily basis going back to 2003.

Life insurance: You must have a life insurance policy in order to get a mortgage in Costa Rica. The policy pays off the mortgage in the event of your death. This is another snag that many retirees encounter when seeking a local mortgage, as life insurance companies are unlikely to grant policies to older people in poor health that would put them on the hook for hundred of thousands of dollars.

Residency and credit check (historial crediticio): Private banks do not require foreigners to be residents of Costa Rica in order to get a loan, but they will do a credit check on you in your home country.

Minimum/Maximum: This depends on the bank. To give one example, BAC San José grants $10,000 as the minimum mortgage, with $500,000 being the maximum.

Early payment penalty: Paying extra on the principle will typically cost you fees of something between 1% and 2% of the amount you are paying, and usually only after you’ve already paid a certain amount (10% - 15%) extra on the principal. This seems to be common practice, although once again, it can vary depending on the bank and the market.

Public banks

Mortgages from public banks have some advantages. For example, their rates are generally believed to be slightly better. In theory, there should also be more credit available, since public banks still dominate the market and have easily the largest asset pool. Unfortunately, public banks are also a hell within a hell of Costa Rican bureaucratic nuttiness at its absolute finest, full of papers and carbon copies and stamps and more stamps. Even basic transactions like bank transfers and cashiers checks can take hours of waiting in line. It’s doubtful you’ll find a bank employee who speaks English, and even if you do, don’t expect much. Long-time expatriates say that if you think this is bad, you should see the public banks before they fixed them. Bad service aside, a much bigger hang-up is that public banks will not grant mortgages to foreigners unless they have a Costa Rican co-signer. This is all well and good if you have a Costa Rican spouse, but short of that, most foreigners are out of luck.

There are persistent rumors swirling about that the two biggest public banks (Banco Nacional and Banco de Costa Rica) are preparing to launch a mortgage program for foreigners with good credit. While that would be nice, it seems unlikely. For one thing the private banks are very far ahead, and for another, the contracting global housing market seems to make it a bad moment for financial institutions to throw their hats in this particular ring. More likely, these lumbering public institutions will probably continue to concentrate on serving their Tico customers.