Getting a Mortgage in Panama as a Foreigner: A Full Guide

Panama is a sought-after location for foreigners interested in purchasing real estate, thanks to its stable economy, robust legal framework, and affordable cost of living. The country provides a range of mortgage options for international buyers, allowing property purchases even with less-than-perfect credit. 

However, mortgage conditions and requirements can vary between banks, so it’s essential to understand the terms and compare offers to secure the best possible deal. While everything might look good on paper, the real-life process can sometimes feel overwhelming. 

If you're feeling overwhelmed, we can help. In this blog, we'll explain the key aspects of obtaining a mortgage as a foreign buyer, including essential tips, common challenges, and practical advice to help you navigate the process with confidence.

What International Buyers Need to Know About Mortgage Financing in Panama?

A mortgage financing in Panama is a loan specifically for purchasing real estate there. The borrower commits to repaying the loan over time through regular monthly payments that cover both principal and interest. The property itself acts as collateral, meaning the lender has the right to take ownership of it if the borrower fails to repay the loan. 

In Panama, mortgages are available to both locals and foreigners. Unlike in North America, where credit history plays a significant role, mortgage approvals in Panama are primarily based on the applicant's ability to repay the loan.

Types Of Mortgages

Conventional mortgages are provided by private banks and generally come with higher interest rates and stricter requirements compared to government-backed mortgages. On the other hand, owner financing occurs when the property seller agrees to finance the purchase directly. This option can be beneficial for buyers who may struggle to qualify for a traditional bank mortgage.

Mortgage Terms and Interest Rates

In Panama, a diverse array of mortgage lenders is available, encompassing both local and international banks. The terms for mortgages typically range from 10 to 15 years, offering flexibility for various financial situations.

For foreign nationals, the current interest rate is around 8%, not including taxes. This rate reflects the general cost of borrowing in Panama, though specific rates and terms may vary depending on the lender and the borrower's financial profile. The government imposes a tax on properties that are not your primary residence. Therefore, foreigners must pay a 1% tax levy, making the effective interest rate 9% when including this tax. 

Eligibility and Criteria for Getting a Mortgage in Panama as a Foreigner

Who is Eligible and What are the Requirements?

The eligibility for getting a mortgage in Panama is for every person who has a valid legal status in Panama, such as a visa, residency permit, or work permit, as this is a crucial factor in determining your eligibility for various loan types. Foreign nationals must classify their properties as investment properties if they lack an immigration status.

Most Panamanian banks and lending institutions are thorough in verifying your documents, and a stable and verifiable source of income is required. Foreigners do not have access to government programs for loan subsidies and typically receive loan terms with a maximum duration of 15 years. Requirements for obtaining a mortgage as a foreigner include:

• A photocopy of your passport.

• A photocopy of an additional identification document, such as a driver’s license.

• A recent utility bill in your name shows your home address.

• A credit report.

• A CV or resume detailing your education and work history.

• Two original letters of bank references.

• Two letters of commercial or professional references.

• Bank statements for the last 12 to 24 months.

• Income Tax Returns for the last 2 years or audited financial statements.

• A letter explaining the source of income and the purpose of the property purchase.

• Proof of immigration status if your stay exceeds the tourist visa period.

• An appraisal of the property is conducted by a bank-authorized appraiser.

• A receipt of the purchase contract and proof of the down payment.

Lending Criteria

Lenders will evaluate your income and employment stability to determine your ability to repay the loan. It's advisable to provide proof of employment, such as contracts, pay stubs, or bank statements. If you have income from foreign sources, make sure to include the relevant documentation to support your application. Here is a list of important parameters regarding the lending criteria:

• Financing is available up to a maximum of 60% of the purchase price 

• Industry-standard is 50%

• Interest rate-8.00%-9.50%

• Maximum term permitted for investment-20 years

• Maximum debt to income ratio: 30%-35%

• Once the loan is approved, banks in Panama require the debtor to endorse a LOCALlife insurance policy for the loan amount

KYC and FP

Banks require compliance with two key divisions: Know Your Client (KYC) and Financial Profile (FP). Know Your Client (KYC) involves providing detailed information including CVs, business plans, social media accounts, and work experience. Applicable to both self-employed and employed clients. A Financial Profile (FP) requires the submission of documents such as bank statements, tax returns, and credit scores.

Minimum Loan Amount

The minimum loan amount for mortgages in Panama can vary depending on the lender and the type of property being financed. Generally, local banks and lending institutions set minimum loan amounts of $100,000. It’s important to check with individual lenders to understand their specific minimum loan requirements and terms.

Minimum Downpayment

For certain loans, such as mortgages, a down payment is usually required. The amount needed will depend on various factors, including the loan amount and the lender's policies. Foreigners typically need to provide a down payment ranging from 50% of the property's value.

How to get a Mortgage in Panama as a Foreigner

Applying for a mortgage in Panama can be a complex process, so it's crucial to work with a qualified mortgage broker. Kredium is a company that can connect you with top mortgage brokers to help streamline your mortgage application process. Here’s a step-by-step overview:

1. Consult a Mortgage Broker

Engage a qualified mortgage broker who will assist you throughout the process. You can reach out to us and we will assist you in finding the best mortgage broker for you. Our team of legal experts will offer professional guidance, ensuring that your documents are properly prepared and your application is completed accurately.

2. Gather Documentation

The broker will help you collect all necessary documents and submit your application to the lender. Prepare the necessary documentation, including bank statements, tax returns, proof of address, and any other documents requested by the lender. 

Lenders provide mortgage loans to foreigners and offer specialized programs designed to meet their specific needs. The client is also required to endorse local life policy. Here is a list of Preliminary documentation needed to process your credit application:

• Personal CV

• Copy of passport

• The last two income tax returns

• Two bank recommendation letters 

• Two personal or professional recommendation letters from colleagues, 

lawyer, physician, etc. 

• Copy of the Purchase Sale Agreement

• Credit report (complete)

• Last six months' bank statements 

3. Lender Review

Once you submit your mortgage application, the lender will thoroughly review it to determine your eligibility. This review includes evaluating your financial stability, income, creditworthiness, and any other relevant factors. Additionally, the lender will arrange for a property appraisal to establish the market value of the property you're interested in. This appraisal ensures that the property's value supports the loan amount you're requesting and helps the lender make an informed decision about approving your application.

4. Sign the Mortgage Agreement

If your mortgage application is approved, the next step is to sign the mortgage agreement. This involves finalizing and signing all necessary documentation, including the loan contract, terms, and conditions. You will also arrange for the transfer of funds, which typically includes the loan amount being disbursed to the seller or their representative. 

This step formalizes the loan and outlines your responsibilities regarding repayment. The client also needs to be present in the final signing. 

5. Close the Loan

With the loan finalized, you will officially take ownership of the property. The closing process involves transferring the property title from the seller to you, completing all legal formalities, and ensuring that all financial transactions are settled. Once this is completed, you will receive the title deed, marking you as the new owner of the property. At this point, you can celebrate your new home and begin enjoying your investment.

Tips for Securing a Mortgage and Choosing Property in Panama

Finding your dream home in Panama can be exciting yet challenging. With its diverse landscapes and vibrant neighborhoods, it’s essential to focus on what truly matters to you and to calculate your monthly installment. Whether you're drawn to city life, beachside relaxation, or mountain retreats, the key to a successful property search is knowing what to look for and how to evaluate your options.

How to Boost Your Chances of Getting a Mortgage in Panama

Securing a mortgage can be daunting, but there are strategic ways to enhance your chances of approval. By demonstrating strong local ties, working with knowledgeable brokers, and presenting a solid financial profile, you can improve your likelihood of getting the loan you need. Here are some practical tips to help you navigate the process and achieve a successful mortgage application:

• Show strong ties and long-term commitment to Panama

• Collaborate with experienced mortgage brokers

• Consider alternative lenders with more flexible conditions

• Provide a larger down payment to reduce lender risk

• Secure an international credit report to highlight your creditworthiness

• Consider using a co-signer or guarantor for extra assurance

• Opt for a shorter loan term to secure better interest rates.

• Demonstrate financial discipline with a consistent savings history

How to Choose the Right Property in Panama

Calculate all associated costs, including purchase price, taxes, maintenance, and homeowners’ association fees. Ensure that your budget aligns with these expenses. A significant number of retirees from North America choose Panama. There are even special mortgage rates available for individuals of a certain age or those on a fixed income, such as a pension. At Kredium, we offer you a large portfolio of real estate in Panama.

Considering Citizenship in Panama

There are multiple pathways to obtaining citizenship in Panama. The most common methods include naturalization, marriage, or being born in the country. If these do not apply to you, another option is citizenship through investment. To qualify, individuals must have been residents of Panama for at least five consecutive years.

You can find more information about this in our article on the Panama Golden Visa, where you can learn about the requirements for applying and the benefits of the program.

Conclusion

Applying for a mortgage can be a challenging task, especially in a foreign country where you may not be fluent in the language. This guide is designed to help you understand the mortgage process in Panama, covering key aspects like lending conditions, requirements, and necessary documentation. 

Suppose you’re still exploring your investment options. In that case, you might also want to learn about the mortgage procedures in Portugal, Spain, Italy, and France, or connect with the best international luxury real estate brokers.

Obtaining a mortgage in Panama can be especially complex due to local bank conditions and regulations. An international mortgage broker can offer a broader range of financing options for purchasing your dream home or investment property in Panama. 

Kredium’s experts specialize in cross-border and international mortgages, providing personalized loan offers and streamlining the process to help you complete your purchase efficiently. With our experience in numerous markets, Kredium can assist you in securing a mortgage in 60 countries worldwide. Register on our website today to get started!