In Panama, most foreigners buy property with cash.
Of course, it isn’t usually a cold hard cash payment. Typically it is paid via a cashier’s check or a wire transfer from your bank account.
You don’t really want to pay with a suitcase full of cash, even if you could. It is always a good idea to have a paper trail of all payments made on a property.
There are two primary options for financing property in Panama.
I review those, and some less commonly used financing options, below
Some sellers (like us) offer to finance your purchase of their property. This way you can avoid dealing with a bank or mortgage company. It can be time-consuming for a foreigner to get a bank mortgage in Panama.
Seller financing is a good option for buyers who want to buy a home in Panama but need to sell their current home to pay for it.
In that case, a buyer may want to negotiate terms that include a small downpayment, payments until the house sells (say 3 years), and then a balloon payment at the end of the 3-year term. You can have your lawyer or agent help you with this if you would prefer.
This type of seller financing allows you to secure the property of your dreams and gives you plenty of time for the sale of your original home. If the original home sells earlier than expected, then you get to pay off the balance early. However, you need to ensure that the financing agreement includes a clause stating there is no penalty for early payoff.
For buyers, who have monthly income and some cash-on-hand, but not enough to pay for the property in full, they may ask to structure the financing to pay a larger downpayment of say 30 to 40%, then the remainder in monthly payments over 5 years or so.
Owner financing is a great option for potential buyers who know they want to purchase property in Panama but cannot pay for it fully upfront.
To discover our seller-financing terms, click here.
It is not an easy process to get a mortgage through a Panama bank. It is tedious. And it can take a long time, especially if you are an American.
If you plan to apply for a mortgage, allow for a good long wait before it is finalized and approved. You may get it quickly, although it isn’t likely. However, it will be a wonderful gift if it does happen fast.
The amount of documentation that is required will leave you flabbergasted. God forbid you forget to include a document when you submit your application. Your forgetfulness can bring the whole mortgage application process to a crawl.
Big Developments Can Be An Exception
The exception is if you are buying a property from a developer that already has a relationship with a bank.
These are usually large developments, especially the type that sell property in the pre-construction phase.
In those situations, your loan can be granted in a matter of days. But most property in Panama is not in that kind of development.
You do not have to be a resident to get a mortgage loan
But you do need to be under 75 years of age (see below for more).
In North America, qualifying for a loan is all about your credit history. However, in Panama the banks focus more on your ability to pay and the property’s loan to value ratio.
Because of this dual-focus, Panamanian banks require massive amounts of documentation.
Documents that:
Panama banks will only give loans on land that is:
The following are typical mortgage terms and requirements for foreigners.
I advise you ask multiple times about what documents are needed for your loan application. It is not unusual to submit your documents to the bank only to learn that they forgot to mention one or two other documents that you need to supply.
If you think you will be applying for a loan, you should bring some of these documents with you to Panama. Others you will gather in Panama. Most banks require them. Of course, every bank has slightly different requirements.
Plus Banks typically require all documents (like your bank statements) from other countries to be “authenticated” either through a Panamanian consulate or by “Apostille” which is a globally recognized type of a government certified authentication of public records.
Tip: Getting your documents apostilled is a better way to go than authenticated.
In addition, some banks require that you have a Panama bank account for at least 6 months before you can be given a mortgage.
If you are self-employed, you need to submit even more documents:
Once all the required documentation is in the bank’s hands, it goes to the bank’s credit committee.
The Committee has 14 days to analyze your loan application. Once approved, the buyer gets to review the terms.
If the buyer agrees to the loan, he signs it and returns it to the bank.
The bank then issues an irrevocable promissory letter for the approved loan amount.
The interest rates are generally in line with those offered in the USA. However, interest rates can vary depending upon:
Note, Interest rates are not credit-score driven. If approved for a loan, all non- residents qualify for the same interest rate.
Also, if you have a pensionado visa, you may be able to get a discount on your interest rate.
Panama has a law to help first time buyers, including foreigners, of new homes by subsidizing the mortgage interest rate. If you are looking to buy new titled construction priced between $35 to 120k (after the down payment), you might want to find out more about it.
Items to watch out for in the loan documents include:
How to Pay Less Interest
Here is a tip to help you pay less interest over the term of your loan.
Because of the difficulty in getting a traditional mortgage, many people, especially from the US, go an easier route. This can include developer financing, seller financing, paying cash, or borrowing against your retirement.
You can also get a loan directly with the developer of a property rather than the bank or mortgage company.
This is very common with pre-construction and during-construction developments.
It usually consists of small down payments, small monthly payments, and then a balloon payment once your property is complete.
If a bank is connected to the developer you are purchasing a property from, the loan can be pushed through within days, but only to buy that specific property.
In Central America, there are international banks that will provide mortgage financing for properties located in some other Central American countries.
If you plan to invest in Panama as well as in another Central American country, you may want to develop a relationship with one of these types of banks.
International banks such as Lloyds TSB International will often finance overseas properties in a range of countries. These larger banks will sometimes finance up to 70% of the value of the property.
Sometimes when you cannot get financing for a specific type of property from one sector of the banking community, another will find it more attractive.
List of Banks
Currently (in 2019), there are 67 banks (Regional, International & 2 State-owned) in Panama. Check out this list of Panama Banks maintained by Panamabank.info.
If you have an IRA at a traditional brokerage, you can roll it into a self-directed IRA. Self-directed or self-managed IRAs give you complete control over selecting and directing where to invest your IRA, including real estate.
This includes using your IRA to invest in overseas real estate.
However, this option is not for everyone. You need to be actively involved in managing your IRA and to learn the rules of the self-directed IRA. Also, depending upon how it is used, it may generate taxable income.
Want to learn more? Start by reading this 2019 Guide To Self-Directed IRAs by US News & World Report.
If you make your first investment a cash-flow property, you can use the proceeds to buy or finance future properties.
The CAP rate can be excellent. We know some people in Puerto Armuelles who pay rent of $500/month to an expat who had just bought the rental house for $50,000. You do the math. Even without looking at the CAP rate, the investor is making 12% a year plus appreciation.
Looking for more finance ideas? I brainstormed 18 ways to finance your Panama property. They might inspire even more ideas for your financial situation.
If you want to finance your Panama property, seller financing is the fastest and easiest to secure. However, as you read above, you have other options as well.
