Almost all properties purchased in North America are financed.
That is not the case in Panama.
Well, at least not for properties purchased by foreigners.
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.
- Seller financing
- Local bank mortgage.
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.
Local Bank Mortgages
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.
Residency Not Required – Age Is A Factor
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).
Top Factors To Qualify For A Loan
- Your ability to pay
- The loan to value ratio
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.
Lots of Documentation Required
Because of this dual-focus, Panamanian banks require massive amounts of documentation.
- Verify your income
- Determine the value of the property you are buying
Property Eligible For A Bank Mortgage
Panama banks will only give loans on land that is:
- Has had some improvements (ie, such as a house, building, etc. with value)
- In an urban or developing area
Terms and Requirements
The following are typical mortgage terms and requirements for foreigners.
- The loan term must end by the time you are 75 years old. So, if you are 65, you can only get a 10-year loan, but if you are 55, you can get a 20-year loan.
- 25 years is usually the maximum term of a loan, regardless of your age
- Up to 75% of the purchase price is the max financing you can obtain. Typically, the percentage is 60 – 70% of the purchase price.
- Purchase price cannot be more than the appraised value
- Life insurance policy required with the bank as the beneficiary of the insurance policy. This ensures that if you die before age 75, the policy will pay off the mortgage. Panama banks don’t want your property, they just want your money: dead or alive. You must buy such a policy regardless of your age.
- Fire insurance is required and must cover 80-100% of the amount of the loan.
- You must physically appear in the bank’s office to complete the loan application.
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.
- Photocopy of entire passport (all pages and stamps)
- Photocopy of one additional photo ID (ie, Driver’s License)
- Utility bill showing your name and physical address
- Personal education and work resume
- Credit report from home country
- Proof of any downpayment made
- 2 reference letters from your financial institutions
- Reference letter from another source (commercial, professional, or personal)
- Last 2 years of tax returns
- Asset verification (Bank statements for the last 12 to 24 months, retirement accounts, equity in your home, etc)
- Letter explaining your income sources & reason for the purchase
- Appraisal of the property by a recognized appraiser
- Purchase contract
- Title deed of the property
- Completed and signed mortgage application
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:
- Information about the company (name, physical address, phone numbers, website URL)
- Letter describing the history of the company and the type of business it conducts
- Last 2 years of audited financial statements
- 2 reference letters from clients of the company
- 2 bank letters of reference for the company
The Credit Committee Review
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.
Mortgage Interest Rates
The interest rates are generally in line with those offered in the USA. However, interest rates can vary depending upon:
- Type of property (personal residence, commercial property, investment property, etc.)
- Age of construction (new construction, old construction),
- Term of the loan (short term, long term, etc.)
- Applicants age and visa status. (Pensionado visa holders can qualify for special mortgage interest rate reductions.)
- Additional collateral offered to the bank as a guarantee on the loan.
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 Preferential Interest Rates for Home Mortgages
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.
Tips & Things To Beware
Items to watch out for in the loan documents include:
- Late payment penalties. Some banks include as much as a 2% interest rate increase for a late payment. In Panama, there are no grace periods for late payments. You may want to negotiate for a grace period.
- A clause requiring payments to a “specific branch” which may not allow auto-debiting from the applicant’s account or internet banking.
- Some Panama banks have mortgage contracts preventing any pre-payments or reduction of principal for the first five years. If your loan documents contain such clauses, negotiate with the bank to allow for pre-payments. (See tip below for why you want to do this)
- Fixed monthly mortgage payments will be required by every Panama bank. There are no adjusted interest rates in Panama. Each payment includes from 85% to 90% interest while the remainder reduces the principal.
- Typically, the accrued interest will require that the applicant pay four times the original loan amount over the 15-year life of the loan.
How to Pay Less Interest
Here is a tip to help you pay less interest over the term of your loan.
- Pay your mortgage bi-weekly instead of monthly. This will save you money and pay off the mortgage sooner. Bi-weekly mortgage payments involve making a half month’s payment every 2 weeks. That’s 26 payments a year amounting to 13 monthly payments instead of 12. The extra month’s payment is applied directly to the principal and can shave 4 years off a 15-year loan, which would cut your interest payments by 27%.
- Ask your lawyer or agent, especially if they have contacts at your bank, to negotiate with the bank to modify the loan document to be more favorable to your interests.
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.
Regional Bank Financing
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.
Self Directed IRA
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.