owner financing in punta cana for buyers
Owner financing or seller financing is a creative way to purchase a property that circumvents the hassles of applying for a traditional mortgage at a bank. When you finance a property through owner financing, the owner of the property becomes, in essence, the bank. Much like a traditional mortgage, you would pay the owner a down payment and then, depending on the mortgage terms, pay monthly quotas, with interest, until the balance is paid.
Owner financed properties are more common than you may imagine in Punta Cana but are generally hard to find. We specialize in these types of opportunities because we have a deep understanding of creatively financing real estate and it’s one of the first questions we ask potential sellers. Since many home owners in Punta Cana own their property outright, there’s many candidates in the market.
Why not a bank?
If you’ve ever applied for a mortgage you know how aggressive and stressful the process can be – and that’s when you’re dealing with your personal bank in your home country! It’s important to understand that a bank in the U.S., Canada or Europe, for example, will not finance a vacation property in the Dominican Republic. A bank’s only recourse, if you stop paying your mortgage, is to foreclose and take the property. But if the property is outside their borders they have no jurisdiction to do so. Bottom line, no international bank will offer you a mortgage to buy a property in Punta Cana.
This leaves you with the Dominican banking system. It’s 100% possible to procure a mortgage with a Dominican bank as a foreigner. Banks like Scotiabank (a Canadian bank who caters to international clients) actually loan money in pesos to Dominicans and dollars to foreigners. But the process is tedious, long, at times unprofessional and includes fees and closing costs. Like any mortgage application you’ll have to provide a great deal of personal information, credit score, work history, current employment, current income, assets, liabilities, etc. And after jumping through numerous hoops and providing all that information, Dominican banks are extremely stringent in their mortgage approval; so there’s a good chance of denial.
When purchasing a property with the option of owner financing there’s no mortgage approval process. The most you may be asked for is a credit score. Just how a bank lowers it’s risk with a stringent approval process, an owner lowers their risk with loan terms, namely, a sizable down payment and keeping title in their name until the debt is paid. So, let’s now discuss typical terms of an owner financed deal in Punta Cana.
The main parts of any owner financed deal are: purchase price, down payment, interest rate, loan term and amortization. Let’s look at each, individually, when purchasing property in the Dominican Republic.
- Purchase price. Like any real estate deal the most important term is the purchase price. One great aspect of an owner financed deal is the numerous other terms to negotiate that could easily turn a bad deal into a good deal.
- Down payment. A typical down payment will be higher with an owner financed property than with a bank. Down payments normally range anywhere from 30%-40% of the purchase price and can even go as high as 50%. A large down payment is the most important way for the owner to lower their risk by holding the mortgage. It helps keeps the buyer honest and, if a default does occur, the owner keeps the down payment and gets the property back.
- Interest rate. Normally a property owner will require a higher interest rate than a bank. Remember that a bank is a large financial institution and a property owner is just a single person. Although interest rates do change, at the time of writing this article, typical owner financed deals, in Punta Cana, carry an interest rate of anywhere between 6%-9%. Depending on the other negotiated terms, your deal could fall on the lower or higher end.
- Loan term. The loan term or pay off period is typically between 5-7 years. Seller financed deals are almost always considered short term.
- Amortization. The loan amortization dictates what your monthly payments will be. In Punta Cana, owner financed mortgages are normally fully amortized, meaning the loan will be paid off, in full, at the end of the term. A fully amortized loan will always result in higher monthly payments but, if lower monthly payments are your preference, a partially amortized option or even an interest only option can be negotiated.
When financing a property through an owner in the Dominican Republic, the title typically stays in the owner’s name until the debt is paid off. A lien is placed on the property so the owner cannot try and sell it to someone else. The buyer then has full rights and privileges to use the property and pay off their debt in good faith. It’s important to note that there is a 3% title transfer tax when Dominican titles change names. Since the title will not be changing names until the end of the payoff period, this is a typical cost that can be postponed with a seller financed property.
Owner financed properties, in Punta Cana, offer an easy on ramp to anyone dreaming of owning a vacation home in the Dominican Republic. With a reasonable down payment, you can purchase a property without all the hassles and frustrations of applying for a mortgage. Also, the terms of an owner financed option allow for a more in depth negotiation that, often times, results in a better deal than a traditional buy and sell real estate transaction. Maybe you pay more purchase price but a lower interest rate, lower down payment and longer term. Maybe you pay a reduced purchase price for higher down payment, higher interest rate and shorter term. Maybe you pay the asking price but you’re able to secure lower monthly payments through a partially amortized balloon loan and postpone your debt to a later date.
With owner financing in Punta Cana there’s many ways to cut a deal just like there’s many ways to skin a pineapple!