How to secure a residential mortgage in Panama as a foreigner

Securing a residential mortgage in Panama as a foreigner presents a departure from the familiar processes in North America. Unlike North American lenders who prioritize credit history and ability to pay, Panama's mortgage lenders place emphasis on the loan-to-value ratio and the applicant's repayment capacity.

Panama typically favors shorter mortgage terms, usually spanning 10 to 15 years, compared to the prevalent 30-year terms in the U.S. Additionally, down payments for foreigners are typically higher, often set at 30% of the sales price.

Foreign applicants are subjected to more rigorous documentation requirements compared to citizens when applying for a residential mortgage in Panama. The list of required documents includes:

• Completed bank mortgage application
• Photocopy of the entire passport (certified if not present at the bank)
• Additional photo identification (e.g., driver’s license)
• Recent utility bill with the applicant’s name and address
• Credit report from reputable agencies like Equifax, Experian, or TransUnion
• CV (resume) detailing education and work history
• Two original bank reference letters
• Two original commercial or professional reference letters
• Photocopies of bank statements for the last 12 to 24 months
• Income tax returns for the previous two years or audited financial statements
• Letter explaining sources of income and reason for purchasing the property
• Proof of immigration status (if applicable)
• Property appraisal from a bank-approved appraiser
• Receipt of the purchase contract and down payment

Authentication of documents from other countries is mandatory and can be completed through a Panamanian consulate or via Apostille certification.

Self-employed applicants must provide additional documents, including company information, financial statements, reference letters, and bank reference letters.

Life insurance naming the Panama bank as the beneficiary for the full loan amount is compulsory, as is a fire insurance policy covering at least 80% of the loan amount on the property's structures.

The disbursement process involves filing the deed transferring ownership in the Public Registry, providing a copy of the filed deed to the bank, and ensuring the loan is filed as a mortgage lien on the property in favor of the Panama bank before funds are released to the seller.

Key considerations in loan documents include late payment penalties and clauses regarding payment methods.

While fixed monthly mortgage payments are standard in Panama, with no adjustable interest rates, paying bi-weekly can save money and shorten the loan duration, provided there are no clauses restricting pre-payments or principal reduction.

Criteria for foreigners to qualify for a mortgage in Panama:

• Loan must be fully paid by age 75, with 10-year loans available at age 65 and 25-year loans at age 50.
• Maximum loan term is 25 years.
• Mortgages for vacation rentals or second homes are limited to 70% of property value, with purchase price not exceeding appraised value.
• Property must be titled and located in urban areas with developed infrastructure, not within 10 miles of international borders.

Types of mortgages in Panama:

• Traditional fixed-rate mortgages offered by banks, with interest rates determined by property type, applicant's age and status, loan term, and property usage.

Qualifying for a mortgage in Panama:

• Banks consider loan-to-value ratio and applicant's ability to pay, requiring documentation for property value and income.

Determining debt capacity for a mortgage:

• Calculation based on total monthly income plus investment balances, multiplied by 35%, minus existing loan payments and 10% of credit card balance.

Other financing options in Panama:

• Seller financing: Seller directly assists buyer with financing, typically requiring 5-10% down payment.
• Developer financing: Developers offer loans with 7-8% interest, requiring 30% down payment and minimal documentation, processed within a week.

For those encountering obstacles, seeking the assistance of a knowledgeable Panama Mortgage Broker can be invaluable in negotiating with the bank and navigating complex mortgage agreements.

Last update: 11/05/2024