You’ve found your perfect slice of Panama real estate. Now, how do you go about actually buying it?
The good news: foreigners enjoy the same property rights as Panamanians, protected by over a dozen laws specifically written with foreign investors in mind. The banking system is sophisticated, stable and has a good history of providing mortgages for both foreigners and Panamanian nationals. And banks have been easing restrictions on lending to foreigners, with a host of options available for when the time comes to putting money down. There are loans for residential properties (including second homes), and commercial, land, construction and investment purchases. The bad: some of the mortgage and financing options are easier than others, as you’ll discover below.
Bank Mortgages in Panama
There is no shortage of banks willing to arrange a mortgage. Many foreigners opt to go with banks that have parent companies in U.S., Canada or Europe (such as Scotia Bank, HSBC, Citibank, BBVA), but Banco Nacional de Panama and Banco Cuzcatlan (Panabank), Banistmo, Banco General, and other national banks are also strong players in the residential mortgage market and may be able to offer more competitive terms based on your residency and how you plan on using the property.
The good news is that loans obtained from a Panamanian bank do not report to your credit report from your home country — the mortgage will only show on your Panamanian credit and will help establish a credit base for any future financing in Panama.
Whereas you might be used to your credit history determining your eligibility for a mortgage, in Panama, the banks look at your ability to pay and your property’s loan to value (LTV) ratio. This big difference means extensive documentation on your part, to provide proof of income, the value of the property, etc. That’s where residential financing becomes a tedious process.
There are a number of criteria, however, that foreigners need to meet to qualify for a mortgage first. 25-year terms are the maximum (and bear in mind that lenders often prefer 10- to 15-year terms), and, as a foreigner, your loan term must end by the time you are 75 years old (ie: if you are 65, you can only get a 10-year loan, while if you’re 50, you can get the maximum 25-year loan). Importantly, expats, especially expats who will be using the property as a second home or vacation rental property, will only be able to obtain a mortgage for up to 70% of the value of the property and the purchase price cannot exceed the appraised value.
Next, the property must be titled in the National Register (90% of land outside Panama City is untitled), and not be located within 10 miles of international borders. Other than that, there are very few additional restrictions.
The Documentation You’ll Need
- To process a mortgage loan in Panama, most banks will require:
- A photocopy of your current, unexpired passport, showing all internal pages, stamps etc
- A photocopy of one additional form of photo ID
- Two original bank reference letters
- Asset verification (bank accounts, retirement accounts etc)
- Credit report
- Two original references from a commercial, professional or personal source
- A photocopy of a utility bill showing a physical address matching the other documents
- A complete CV or resume
- Financial statements and tax returns for the past two years
- Purchase contract, including proof of any down-payment made
- A photocopy of the registered title deed and registered survey of the property
- Certificate of title deed from the public registry of Panama
- A property appraisal carried out by an approved appraisal company
- Life insurance is also required naming the Panama bank as the beneficiary for the full loan amount. Since the policy is based on the applicant’s life expectancy, it is more expensive for older applicants.
- Fire insurance policy on the structures for at least 80% of the loan amount is also required.
Note that Panamanian banks require all documents from other countries to be “authenticated” either by a Panamanian consulate or by “Apostille.”
If You’re Self-Employed, you are also required to provide these additional documents:
- Information about the company (name, address, phone number, website URL)
- Letter describing the company history and the type of business it’s engaged in
- Last 2 years of audited financial statements
- 2 reference letters from companies the applicant’s company engaged in business with
- 2 original bank reference letters
Once the buyer has satisfied all of the bank’s documentation requirements, there is a 14 day turnaround on approvals. During this 14 day period, the bank’s credit committee will analyze your case based on your income and repayment abilities. Once approved, a loan term sheet will be issued by the bank for the buyer’s review. If the buyer agrees to the loan, he or she signs the term sheet, returns it to the bank, and is issued an irrevocable promissory letter for the loan amount approved.
Terms and Rates
Rates are not credit-score driven, and terms are similar to the U.S. and Canada. Interest rates will be determined based on a variety of factors, such as the type of property (residential, commercial, investment), the age of the construction, the term of the loan, the applicant’s age and status and the type of collateral offered to the bank as guarantee on the loan. At the moment, rates very considerably in Panama depending on how you plan on using the property. For investment properties, rates are generally around 7%. If you are going to be occupying the property as a primary residence, rates will be around 6%. And if you earning your living in Panama and live in the property full time, rates will be around 5%.
Mortgage Incentives for Retirees and First-Time Buyers
If you have a Pensionado Visa in Panama you may qualify for special discounts on mortgage interest rates. Note that if you are retired, you will need to get a letter from your government stating that you are receiving a pension that is payable for life. If you’re not receiving a pension, you must have a regular income and must provide proof of same.
If you’re a first time buyer you might also qualify for reduced interest rates and a discount on taxes. To do so, you must never have owned property in Panama before and the property must be newly-built, titled, and for residential use only. The loan has to be for between $25,000 and $62,000, cannot exceed 15 years and cannot exceed 95% of the property’s value.
Prequalification for a Mortgage
If you are considering financing your purchase, it is best to get prequalified for a loan right from the start to avoid delays in the process and risk losing the property to another buyer.
Mortgage pre-qualifications and approvals stay valid for as long as it takes the project to complete construction. Every 6 months the bank will check to make sure the client income and credit history hasn’t changed and will extend the approval for another 6 months. This process will continue until the property is ready.
Check out this link for the documentation you’ll need to get pre-qualified for a mortgage.
As there are over 80 banks in Panama and few bank officers that are able to speak English, finding the right bank and obtaining a mortgage on your own may be a bit overwhelming. Our mortgage professionals speaks English, Spanish, Russian, Italian and Chinese.
Other Types of Financing
Because of the hurdles to get a traditional mortgage, many expats look to other alternatives: seller financing, developer financing, paying cash, or borrowing against their retirement.
By far the most attractive of all the options – for both financing terms and ease of transaction – is if a seller is willing to help the buyer finance directly. We’ve seen this at work in cases where buyers need to sell assets in their home country, like existing homes, and are confident they’ll be able to do so within a time-frame, say three years, but have the down-payment ready now. If the original house sells faster than expected, there’s usually no penalty for early repayment.
If you decide to try this route, you’ll need a good attorney working with a knowledgeable real estate company to structure the purchase, as all the terms are on the negotiating table: interest rate, home insurance, the down payment, term, and, of course, price. The attorney would handle registering the transaction and escrow accounts, while the real estate professional will help you understand your options and conduct the negotiations. Under this type of financing, most sellers accept 10% as a down payment after the buyer has signed the buy/sell contract, though it’s entirely up to the seller – we have seen some accept 5% and others who won’t settle for less than 50%.
Developer Financing in Panama
If you’re buying a property from a developer that already has a relationship with a bank, it’s a different story to standard residential mortgages. These are usually large developments, often in the pre-construction or during-construction phase. If you’re in this boat, your loan can be granted in a matter of days. Some developers also offer shorter-term financing as a bridge loan, but at a similarly high interest rate. Expect to put down 30% and pay approximately 7-8% interest for a 3-5 year loan, with monthly payments and a large balloon at the end. The good news is you’ll only have to provide a deposit check and your passport as “documentation”. It’s a great way to establish a credit history in Panama and it might even lead to qualifying as a resident for mortgage purposes.
Some final food for thought: we’ve also seen buyers thinking out of the box and going with cash-out refinancing on existing properties back home, reverse mortgages, investor loans (secured by the property), or investing their self-directed IRAs into property in Panama.