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8 signs you are not ready to buy a house in Costa Rica

8 Signs you are not ready to buy a house in Costa Rica

It is quite normal that we encounter a would-be buyer who is not ready to buy a house yet.

We advertise our property listings on a few local websites, dedicated to the Tico market. All our agents speak fluent Spanish, so that is not a problem. We often see that a local client is looking at homes but is not ready to buy a house. The problem is that they don’t know it.

I know that quite a few of our readers do not work with a real estate agent, for reasons of their own. Often, they’re quite right: I see the quality of the service and knowledge that some agents offer. That is why I insist on mandatory licensing, for educational reasons.

In the United States and many other countries, a property buyer will call an agent to act as a buyer’s agent. That agent might be recommended by a friend or relative, or could be found online. Some who have the time will do their homework before hiring a buyer’s agent.

In Costa Rica, the process works totally differently, if there is any process at all. There are eight warning signs that you are not ready to buy a house if you haven’t covered these issues first.

1. Location

Are you sure about the location you have chosen for your search? Are the members of your household happy with the location you’re looking at? Traffic jams are a big influence nowadays regarding where you might want to purchase a home in the Central Valley.

2. Pre-qualified by lender

When someone calls me to see a property we listed on a local real estate listing website, I always ask a couple of questions first.

a. “Are you buying cash or do you need financing?” Often, the answer is “Why do you ask?” This usually leads to an uncomfortable conversation that ends with the interested party hanging up the phone. The buyer who hangs up is clearly not ready to buy a house in Costa Rica.

b. If the answer is yes, without any more discussion, my next question is “Have you been pre-qualified by a lender?” on which I receive a big NO most of the time.

c. When I ask them how they know what their budget to buy a home is, it becomes quiet on the other end of the line. This is another client who is not ready to buy a house in Costa Rica.

In other words, all those who are just looking without knowing their budget, or whether their lender will agree to give them a mortgage, are wasting their time (and mine). This doesn’t mean that I won’t show them the house. I am just trying to find out if they are reasonably qualified buyers, which is all I can do.

Why would you, as a buyer, want to look at and fall in love with a home you can’t afford? Don’t go that route. Talk to different lenders first. Find out what your budget to purchase a home is before you start looking at houses like crazy. If you’re not pre-qualified by the lender, you’re not ready to buy a house yet.

3. Not making enough money

Of course, we all love to live in a house that has everything you want in life. But can you afford it? Do you make enough money to pay for it? Crunch the numbers first. See how much your family income is. Also, see how much you spend and how you spend it. Can you cut back on that?

How much will your monthly payments be? Use an online mortgage calculator to get an idea. What about life insurance (your bank will oblige you to take it), home insurance, property taxes, H.O.A .fees? You’ll need to spend some funds on maintenance, paint, and upkeep, too. What about the almost 3% closing cost? Have you saved up for that? Getting scared now? You should. Crunch the numbers first.

Many financial planners say that the cost of your home should not exceed 28% of your gross income. If you do exceed that percentage, you’re not ready to buy a house. Talk to your loan officer or banker before you start looking at homes for sale.

Ivo Banner American-European

4. You don’t have enough savings

Did you know that you need at least a 20% down payment to buy a home? That is if your lender will give you a mortgage for 80% of the purchase price. But there are some other things you’ll need to pay for, too, such as a bank mortgage commission, closing cost, the movers, home insurance and other additional costs that you might not know about. You need appliances and furniture too, don’t you?

You sure also want to build up a reserve before you buy, so you will always have a couple of months house payments ready for an emergency.

5. Not being able to pay

Making enough money to buy and not being able to pay your debt are two different things. Credit cards can save the day, but the interest rates you pay on credit card debt are huge. So are your monthly car payments and schools for the kids. It all adds up, and they come back every month. What happens when you run behind on those payments?

HOA fees, insurance, schools, water, power, and gas go up now and then; will you be able to keep up? Have you built up a reserve in your savings account? Start looking for expenses that you could eliminate when necessary or use a budget calculator. Once you know if you’ll be able to pay or not, go to the next step.

6. A new job

You earn a very good income, but you’re new on the job. Ask your lender if they’re okay with that. Some lenders will request job stability and will lend only after you’ve worked for two years for the same employer. It is also important to understand that a commission-based income will not qualify as well as a fixed income.

7. You have too much debt

You’re already over your head in debt. You think you can make that credit card debt and car payments disappear by buying a house? I see it happen all the time. Some buyers request that the seller accepts a 150% value appraisal on a property they want to purchase so they can make these debts disappear by including them in the loan.

Your debt load should not be more than 36% of your gross income.

Believe me: if you can’t make your monthly credit card payments, you are not ready to buy a house. You should be living under a bridge! Before you buy a home, have a hard look at your spending habits and get rid of some of that customary debt first. Your health is very important, but your financial health is even more important when you want to buy a home.

8. The type of home

You haven’t really thought about the type of home you want to buy. Do you know the advantages and disadvantages of a condo, a townhome in gated community, and a single family home? Each is unique in its lifestyle, maintenance cost, and upkeep. Do your homework first and see what type of home suits your necessities best.

I know that all those new homes and condos advertised by real estate developers look incredible. And the deals they offer are something you have to take advantage of! Don’t fall into the trap and don’t jump the gun. Do not assume you can afford it and are ready to buy a house. Pay attention to the eight signs and crunch the numbers first. Then make a wise decision.

Are you or are you not ready to buy a house? Tell us why or why not in the comments!

Ivo Henfling founded the American-European Real Estate Group, the first functioning MLS in Costa Rica with affiliate agents from coast to coast, which has been in operation since 1999. Read his blog or contact Ivo at (506) 2289-5125 / 8834-4515 or at ivo@american-european.net.

10 Comments »

    J N Paco | June 17, 2017

  1. This applies to anyone buying a house anywhere.

  2. Denver Dave | June 18, 2017

  3. That BIG Beautiful House may well be EVERYTHING that you have Dream of owning and enjoying. You may even be “Qualified Financially” TODAY. Tomorrow “HAPPENS”, and suddenly your financial or personal circumstances change drastically. Always “CONSIDER” the worst possible “Circumstances” which are most likely never to occur, and realize that many times they do. Don’t set yourself up for “A Fall” which you and your love-ones may not survive. Proceed definitely, but only after you have “Considered & Factored-IN Everything”. We Live in a World of Constant Change. I’ve seen my clients desperation biting off more than they could handle working 25 years in RE in Colorado. I was personally not immune to thinking I had “It All Covered” only to find out that “I hadn’t thought ‘that’ could happen. Your Very Good Advice here Ivo , & Most RE Agents want to “Make the Sale” & do not want to consul clients with Advice that might “Blink Caution Here”. Good on you Ivo.

  4. Ivo Henfling | June 18, 2017

  5. Thanks for your comment Dave. The caution on my part is experience and interest in the client. Long term thinking, not trying to get to the next closing only.

  6. Denver Dave | June 19, 2017

  7. IVO,

    The way in which you go out of your way to “Protect Your Clients” will be, and I am sure has been, duly noted. Repeats & Referrals Biz pays huge dividends & allows your clients to feel safe with your advice. It’s a “Win/Win” for all concerned and as a ‘Retired RE B” it is So Good to see that a Broker is excelling in Setting High Standards that counter those who just want to “Get to Closing” & pick-up their EARNED (?) Commission. Love your Blog. Keep “Doing” and educating. Thank You Ivo.

  8. Ivo Henfling | June 20, 2017

  9. Thanks for the good words Dave. As you know, as long as you love what you do, it will pay off. And if it doesn’t, so be it…

  10. mark price | June 23, 2017

  11. Costa Rican Banks rarely, if ever, lend to foreigners, thus making foreign demand a cash market.

  12. William Windsor | June 24, 2017

  13. Be extremely careful about lending any money to Costa Ricans for any real estate investments. In 2004 I loaned money to a Tico for a land purchase and when he repaid me in 2010 he defrauded me out of several thousands of dollars. Of course I could have sued him but that would have probably led to no recovery.

  14. Wetto | June 24, 2017

  15. You’d also better be prepared to pay your property taxes IN PERSON every year, or the Tico doing it for you will own the house after 3-4 years.

    Also, you’d better be able to show that they buyer has title to the home and he/she can legally transfer it you…especially for homes close to the beach (which usually can’t be transferred anymore).

    Also, you’d better have security onsite or not have nice things in the home. Everything will be stolen if the home is considered empty for a while with no one watching but the thieves.

    Also, roofing and plumbing will be a problem due to the rains/floods and toilet paper being flushed in the toilets. Expect water issues at least once a year, so have a local plumber on call.

  16. Ivo Henfling | June 24, 2017

  17. Your first statement is incorrect Wetto. Your other comments are very much appreciated. In short: use a good real estate agent, a goo home inspector and a good real estate attorney when you buy.

  18. Wetto | June 24, 2017

  19. Also, A/C units will burn out due to constant use and salt water air/humidity. Don’t be surprised if this happens every 2 years.

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