Mortgages In The D.R.
Getting A Mortgage In The Dominican Republic & Latin America
It is widely known the the Real Estate market in the Dominican Republic is primarily cash driven. This is one of the major reasons that the values of Dominican Republic real estate was not heavily affected by the economic crisis; properties were essentially wise substitutes for great interest rate “savings accounts”. As the time to buy is now, many people are inquiring about the availability (and process) of mortgages. Here are some points to keep in mind when considering whether or not to purchase via a mortgage or cash:
1. Interest Rates. Interest rates are much higher than one would typically find in the U.S. or Canada. Rates in the Dominican Republic will more than likely rest somewhere in the teens (above 10%) and may not be fixed rates. You’ll likely wind up with an adjustable rate mortgage, which means you may start off with a nominal annual percentage rate, only to see it dramatically increase throughout your mortgage term. The rates would go up if the Country’s central bank rate increases. Now of course the rate also could go down, but an adjustable APR would indeed be a risk.
2. Term. In the U.S. and Canada it is reasonable to expect a term of 30 years on your PRIMARY residence. As the purchaser of a second or vacation home, your interest rate will creep higher and your term may be shortened. It is best to look at a property in the Dominican as though it would be a second or vacation home. Terms here will likely be for 15 to 20 years, and as with any of this information here will be dependent on the qualifications of the borrower.
3. Age Limits. The majority of the banks in Latin America do require that the borrower has paid off the loan in full by the time you reach the age of 65 – some may extend this to 75.
4. Life Insurance. This is likely one of the first points to take into consideration before moving forward on applying for a mortgage in the Dominican Republic. Should the bank require Life Insurance, you could be facing some issues, as people in their 50’s and 60’s (representative of a majority buyer demographic in the Dominican Republic) almost always have a pre-existing medical condition which can make obtaining life insurance quite challenging. Those of you that are familiar with jumbo loan programs in the States are fully aware of odd-ball requests such as this throughout the mortgage process.
5. LTV. The Loan-To-Value ratio can be lower than some of us may have experienced in the past. Whereas 100% and higher mortgages were quite commonplace for primary residences and 80-90% LTV was commonplace for second/investment/vacation homes, this is not the case in the Dominican Republic mortgage market. It is not uncommon to receive rates as low as 50% LTV.
6. Appraisals. While appraisers are commonplace in the Dominican Republic, and one can quickly establish an average value on their property via an appraiser, the banks will most likely want to send their own “in house” appraiser to do their valuation. As you may suspect, the banks own appraisal does not always come in as high as you may want, and as such the banks will expect you the borrower to offset any shortfall.
7. Age of Condo. Condos older than 25 years (approximate) may have bargain pricing. The reason being – they must attract a CASH BUYER. Banks prefer to lend on newer properties – older properties will either fall outside lending guidelines entirely or attract a much lower LTV and much higher interest rate.
8. Grueling Process. There is really no such thing as a quick pre-approval here. It takes much longer here to even lay the groundwork for the mortgage process which can include such things as opening a bank account and transferring funds – all requiring personal introductions to your local branch manager. Time can take weeks instead of days.
All in all, there is much to be considered when weighing in on the pros and cons of obtaining a mortgage in the Dominican Republic. If you would like to learn more, please do not hesitate to contact us at Go Punta Cana Real Estate.
BORROWER BEWARE: It is not uncommon practice in the Dominican Republic for many financial institutions to perform what can only be considered a “bait and switch”. It is not uncommon for banks to advertise and promote how “easy” or “simple” it is to get a mortgage – how willing they are to lend money. For the above to be true, please keep in mind the points one through eight, and also keep in mind that this process becomes easier for locals or foreigners who have permanent residency on the island and can show proof of income from local sources. Most major banks now require foreigners to have DR residency.