Property Purchase Process | Property Purchase Costs | Mortgage Finance

 

Overview:
Unless you’re fortunate enough to be in a position to buy in cash, you’ll be looking for a mortgage to purchase your Panamanian property.  Before you dive in, it’s crucial to work out how you plan to pay for everything – not just the asking price of the property itself, but also all the extra costs involved, not forgetting the cost of moving and any necessary renovations.

You will need to consider the potential costs of changing money from pounds sterling into dollars.  To purchase your property in Panama, you will need to convert your pounds sterling into dollars at some point.  Although the price of your new home in dollars will be fixed, the ultimate cost in sterling will vary depending on how exchange rates move, especially if your mortgage repayments are in dollars not sterling.  There are many options to consider such as buying all your dollars at the outset for a fixed exchange rate (called buying “for spot”)..

It’s important to carefully consider your options before you commit to anything and you should consult with a foreign exchange specialist or an independent financial advisor who will be able to explain all the different possibilities.  In particular, be sure to check what the setting up expenses and early redemption penalties are exactly as these vary significantly.

Availability:

There are four main options for British investors:

• Taking out a mortgage with a Panama bank secured against your Panama property
• Remortgaging your UK home to release equity to purchase your Panama property and using your UK property as security
• Borrowing from an offshore lender using your Panama property as security
• Taking out a second mortgage in the UK using your Panama property as security

UK EQUITY RELEASE:

The UK remortgage market offers a wider range of finance options than the Panama mortgage market, including standard residential remortgages, buy-to-let remortgages and self-certified remortgages

Requirements will vary but you will need to demonstrate how much unencumbered equity you have left in your house, the overall value of your property and your income (and in the case of buy-to-let remortgages your predicted rental income from the property)

OFFSHORE LENDERS

• Offshore lenders offer both the capital sum and the repayments in most major currencies
• Loans tend to be made with fixed rates and “non-status”, “self-certification” and “buy-to-let” products are not available

UK-BASED MORTGAGE ON YOUR PANAMA PROPERTY

• Several UK lenders now offer mortgages overseas
• So a fourth option would be to take out a second mortgage with a UK lender secured against your Panama property
• You will normally be required to put down at least a 20 per cent deposit and there will generally be a minimum loan amount
• As with any other mortgage, your income and existing liabilities will be taken into account when assessing eligibility

Rates of interest:

Fixed or variable rates are available for both UK and Panama loans.  Fixed rates are always at a high rate of interest but you can fix the level for up to 15 years, thereby avoiding exposure to interest rate fluctuations.

The dollar has historically been subject to lower interest rates than the pound meaning that Euro mortgages tend to be leant at lower interest rates than their sterling equivalents.  However, interest rates in Italy have been high for several years and rates for non-residents are sometimes higher.

Offshore lenders offer some very attractive short-term fixed rates.

Loan-to-value:

PANAMA LENDERS

Panama banks will normally lend up to 75% of the assessed value of the real estate, although for overseas buyers the maximum amount is usually about 70%.

UK REMORTGAGES

Most UK lenders will loan between 75% and 96% of your UK property as equity release to purchase a home overseas.

OFFSHORE LENDERS

Offshore lenders will loan up to 75% of the bank valuation or purchase price of your Panama property - whichever is lower.

UK MORTGAGE ON ITALIAN PROPERTY

UK lenders offering mortgages secured against your Panama property normally offer a maximum of 80% LTV.

Repayment periods:

UK residential remortgages are offered over 5 – 30 years with 25 being the norm (depending on income and age). Panama mortgages normally have shorter repayment periods (a 15-year term is typical), which can make monthly repayments prohibitively expensive.  Buy-to-let UK remortgages offer the longest terms lasting for 75 years.  Most lenders apply early redemption penalties throughout the lifetime of the loan.

Prequalification

Prequalification or pre-approval is the first step in any real estate transaction in which you'll need a mortgage loan. Our lenders will analyze your income, debt, and credit history in order to determine if you qualify for a mortgage and if so the maximum amount of your mortgage loan.

Why is prequalification important?

If you are interested in buying real estate abroad, it is wise to get a pre-approval letter from a lender before you begin you search. This accomplished three things: 1) It lets you know if you can qualify for a mortgage. 2) If approved, it lets you know how much you will be able to borrow. 3) It lets sellers know that you are serious.

How do I pre-qualify for a cross border mortgage?

Prequalification involves performing a credit check, filling out a uniform residential loan application, and providing certain documentation such as bank statements and tax fillings for the two previous years. If you are in doubt, it's always best to begin with a credit check as most cross border mortgages require a minimum FICO score of 680. CBM can perform a cursory credit check for a fee $25 USD. A prequalification letter can be obtained for $200 USD and generally takes several weeks. It is important to understand that prequalification is not a loan application, a request for credit, or a real estate contract of any type. It is simply an analysis indicating what a lender would be willing to loan you.

Appraisals

An appraisal is simply an analysis made by a qualified person as to the market value of a property.

Appraisals are an essential part of the loan process as they assure the lender that the property value is commensurate with the value of the loan. CBM uses our own valuation experts; third party appraisals are not accepted for loan purposes.

An appraisal for a mortgage loan should not be confused with the separate and independent appraisal conducted by local government for tax purposes. Though the two appraisals can arrive at the same value, tax appraisals are often lower than their mortgage-related counterparts.

If you are interested only in a qualified appraisal and do not need to apply for a loan. Please contact us for details.

How do appraisals work cross border?

Though appraisal techniques can vary from location to location, appraisals abroad often bear little resemblance to those in the U.S. or Canada as several widely used techniques have little or no value.

One such technique is neighborhood comparatives or "comps" which is based on the sales value of homes in the same neighborhood. This technique has little value for several reasons. First, information about the sale price of homes is often not available to parties other than the buyer and the seller. Secondly, and more importantly, there is often little neighborhood planning or zoning restrictions so houses located next door to one another can have wildly different values.

Similarly, valuation based on tax appraisals is not a good indicator of the real market value of a property. Quite often the real sale price is not the same the official sale price indicated to local officials. In Mexico for example, the carastro (tax value) of a property is often set based on past valuations without an official inspection of the property. While tax appraisals are essential for determining one's tax obligations, this is of little use for market valuation.

A good technique for buyers, but one that is not widely used for actual loan valuation purposes is a property's investment value. This is simply a basic measure of a return on investment value based on rental returns. In the U.S., this is often calculated as monthly rent x 96 months. In Mexico, Latin America, and the Caribbean this figure will vary with location and numerous variables but should fall somewhere in between 120 and 144 in high-demand areas or could even be less in less desirable areas.

 In Acapulco, Mexico for example a reasonable sketch could be achieved by monthly rent x 144. Bear in mind that this is a rough measure of market value and does not account for innumerable variables such as interest on loans, inflation, raising property values, seasonal and other variations in determining monthly rental income etc. which are needed to determine the true return on one's investment.

The technique most widely used to determine market value for loan purposes is the replacement value appraisal. This figure is calculated by adding the value of the lot to the depreciated value of the construction and the value of special amenities in a relatively complex calculus that varies from location to location.

General Mortgage Requirements

• Borrowers must be U.S. (or for some programs Canadian) citizens or citizens of the host nation (i.e. Mexican for mortgages in Mexico).
• An acceptable debt to income ratio and, for U.S. dollar based loans, FICO score.
• Minimum verifiable household annual income of $20,000 USD.
• 2 years of verifiable employment.
• Non-nationals must have a valid passport from their country of origin.
• Application fees.

Documentation Required:

• Completed loan application (standard 1003 form).
• Credit report authorization form.
• Copy of marriage records.
• Copies of passport or drivers licence.
• Non-nationals must have a valid passport from their country of origin
• Proof of income including (for employees and contract laborers: payroll checks, check stubs for the previous four months; for business owners and the self-employed: most recent tax return, previous 2 years W2 or 1099s, 4 previous months of bank statements.

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