Obtaining a mortgage in Panama as a foreigner requires many documents. This should not be surprising as every country typically requires foreigners to provide more documents to obtain a mortgage than their citizens. Panama banks are no exception.
Titled real properties with improvements (structures) are easier to get a Panama bank mortgage for the purchase than raw land. Improved titled real properties located in urban or developed areas with an existing infrastructure are the easiest to qualify for a mortgage.
If you intend to purchase raw land in an urban or developing area with the intention to build a structure on it, your chances increase for acquiring a mortgage. On the other hand, raw land with no improvements in undeveloped areas with little or no infrastructure have little chance of being granted a mortgage by a Panama bank. The only exception may be if you established a long credit history with a specific bank or you deposited substantial funds with that bank.
Down payments are almost always required by sellers with the average being around 30% of the sales price (or appraised value).
Terms and interest rates can be similar to those in the U.S. and Canada. However, the process for applying will differ.
In the U.S. and Canada, financing depends on your credit history and ability to make payments. Panama differs because obtaining a mortgage is based on the loan-to-value ratio and your ability to make all payments. This is why Panama banks require full documentation to prove your income is sufficient to fulfill the payment obligations and the real property is valued correctly. Foreign applicants are strangers to Panama banks which is why they require longer, more tedious application process with many documents.
Be Organized and Prepared is the first thing you must know about applying for a mortgage with a Panama bank. The following is a list of typical documents Panama banks will require when you apply for a mortgage:
• Formal mortgage application properly filled in and signed;
• Copy of your entire Passport (certified copy if you do not present it to the bank);
• Copy of a different photo ID (a national ID card or a driver’s license);
• Copy of recent utility bill showing your full name and home address;
• Copy of a recent credit report from a large company like TransUnion, Equifax, or Experian;
• Two original bank reference letters addressed to the specific bank;
• Two original commercial or professional reference letters;
• Copy of your bank statements for the past 12 months or longer;
• Copy of your last two income tax returns (or audited financial reports);
• Your resume (CV) showing you education and work history;
• A statement explaining the sources of your income and reason for purchasing;
• Immigration status documents;
• Property appraisal from a bank approved appraiser;
• Copy of the purchase contract and down payment receipt; and
• Title Deed of the real property filed with the Public Registry before the funds can be released.
Life Insurance coverage for the full mortgage amount with the Panama bank named as the sole beneficiary is required.
Fire Insurance coverage for the real property structures for a minimum 80% of the total mortgage amount is required.
Self-Employed applicants must provide additional information including:
• Company details like full name, address, website URL, etc.
• Date and location of company formation;
• Type of business activities;
• Letters of reference from at least two companies who did business with your company;
• Original bank reference letters for your company addressed to the specific Panama bank (two references preferred).
Watch out for these items in the loan documents:
• Late payments penalties may include an increase of the interest rate.
• No “grace periods” for late payments which must be paid on time.
• “Designated branch” to receive all payments clause prevents you from making payments using an auto-debited system from your account or paying by using internet banking. Such a clause requires every payment to be made directly to the branch which approved the mortgage. This may create inconveniences when you are out of the country or otherwise inaccessible on mortgage payment day.
• Pre-Payments of mortgages before expiration of the term is usually accepted by Panama banks. However, verify that a pre-payment prevention clause is not included in your mortgage agreement.
• Higher Rates for commercial properties than residential ones are common. Mortgage rates will be lower if you obtain the mortgage before purchasing a property than after you own it.
• Branch managers are not reliable sources for information regarding mortgages. Talk directly with the bank’s mortgage or loan department at the bank’s headquarters.
• Foreclosures occur in Panama. The bank is only entitled to the outstanding unpaid loan amount plus expenses for the foreclosure process. If the bidding goes over the amount the bank is entitled to, the property owner should receive the balance.
• Always consult with a Panama attorney knowledgeable of banking practices.
Patience: You must be patient as the entire mortgage process will take longer than what you may be accustomed to in your home country. Every document in English must be translated into Spanish. Every agreement the bank asks you to sign should be reviewed by a Panama attorney who can explain the consequences of failing to comply with every term and condition. It is recommended that you apply for a mortgage with more than one Panama bank as the first one may reject your application.
Pre-Approval of your mortgage can be obtained in Panama with many banks and financial institutions. Foreigners opening Panama bank accounts should obtain credit cards in order to build up a favorable credit history. Prior to making offers on Panama real properties, visit with your bank’s mortgage department to see what types of mortgages they can provide you with based on your credit history, income, available assets and other resources. You will be informed of the current mortgage rates and how much you can offer as a down payment. While the bank will not guarantee that a mortgage will be granted, it can issue a pre-approval letter indicating that it appears you can qualify for a mortgage. This letter will give you greater leverage when negotiating with sellers or competing against other buyers for the same property.
The Procedure for the mortgage approval entails:
1. Filing the Buy & Sell Agreement (Title Deed) with the Public Registry where a copy is provided to the bank; and
2. Filing the mortgage as a lien on the property in the bank’s favor.
Note: You do not have to personally take these steps as your escrow officer or your attorney will be able to provide these services.
The Title Deed filing with the Public Registry accomplishes the following:
1. Releases all previous existing mortgages on the property;
2. Provides the sale terms regarding the buyer’s mortgage amount and how much the seller receives from the balance after all required fees associated with the sale are paid (real estate commission, property transfer tax, etc.); and
3. States the loan amount the buyer receives and the amount of the bank lien on the property.
Save Time with KW Obarrio
The Panama realtor services of KW Obarrio can make the introductions to the banks and financing sources, and assist in the process for obtaining a Panama mortgage.
As you read above, foreigners must provide more documents and spend additional time to obtain a mortgage than Panama citizens. This is natural when foreigners apply for bank mortgages in other countries.
Real properties with existing structures located in urban or developed areas with an infrastructure have the best chance for obtaining a mortgage.
The process for granting mortgages differ from the U.S., Canada, and in EU countries. The loan-to-value ratio and your ability to make all payments are of most importance for Panama banks.
Pre-approval letters from banks are available making it easier to negotiate with sellers and being in front of competitors for the same property.
Consult with a reliable Panama attorney who knows all about financing before signing agreements with banks containing terms and conditions you may not understand.