For most people, buying a property represents the single, largest financial commitment they are ever likely to make. And if you are purchasing abroad – Punta Cana Lifestyle Real Estate always and without exception recommends that purchasers take sound, independent financial advice, before getting too far down the line when they are thinking of buying a property in the Dominican Republic.
The information in this guide is of a general and orientative nature. It goes without saying that everyone’s personal circumstances, needs and requirements are entirely individual and for that reason, there is absolutely no substitute for consulting a fully qualified financial adviser in order to seek their unbiased, specialist advice regarding mortgages and currency exchange.
The Punta Cana property market has changed beyond recognition since the boom years that shaped the new millennium. And in pretty much every respect, it has changed for the better. Property prices are realistic, contracts are more transparent and the choice is greater – and confidence has returned. You can keep abreast of all the latest news and emerging trends relating to the Dominican property market, including mortgages and more, by checking out the Punta Cana Lifestyle Blog.
Getting a mortgage in Dominican Republic
Although the majority of our clients are usually cash buyers, or choose to finance the purchase of their Punta Cana home through or equity release of their property back home, currently around 15% prefer to opt for a Dominican mortgage instead. Mortgages in Dominican Republic are considerably easier to obtain nowadays, with some banks offering Second Home Loans programs to residents of Canada, United Kingdom and United States- including Puerto Rico. Even so, lending criteria are still tighter than it once was. So you need to have your own finances in order – transparent, accurate, up-to-date and solvent obviously – it is also vital to seek expert, independent advice. And while the majority of loans granted these days are a fixed rate for one year, Punta Cana Lifestyle Real Estate can help you to locate a financial advisor who will work with your interests at heart, in order to help track down a mortgage or financing option that best suits your financial situation.
Seller Financing (Developer Financing, Owner Financing)
Seller financing is a loan provided by the seller of a property to the purchaser. The purchaser will make a down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman’s terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank.
To a seller, this is an investment in which the return is guaranteed only by the buyer’s credit-worthiness or ability and motivation to pay the mortgage. For a buyer, it is often beneficial, because he/she may not be able to obtain a loan from a bank. In general, the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed exactly as it would be by a bank.
Seller financing has emerged as a way for people with poor credit a path toward home ownership in the area following stricter regulations placed on mortgage lending following the subprime crisis of 2008. Unlike a regular mortgage, in which the buyer gets the legal title to the house, the buyer in seller financing does not receive the legal title until they have fully paid off the purchase price of the property. This means that if a buyer misses a payment, they can be evicted and lose all money and interest put into the property. In addition, the buyer is often responsible for repairs, taxes and insurance, meaning that they have the responsibilities of being a homeowner without the rights of actually owning the property.
There are no universal requirements mandated for seller financing. In order to protect both the buyer’s and seller’s interests, a legally binding purchase agreement should be drawn up with the assistance of an attorney and then signed by both parties.
Drawbacks for Seller Financing
- The buyer could pay the loan in full but still not receive title due to other encumbrances not divulged by, or unknown to the seller- such as any liens received after the agreement date.
- The buyer could make payments faithfully, but the seller might not make payments on any financing that may be in place, thus subjecting the property to foreclosure.
- The seller might not get the buyer’s full credit or employment picture, which could make foreclosure more likely, and depending upon the security instrument that was used, foreclosure could take up to a year.
- The seller could agree to a small down payment, only to have the buyer abandon the property because of the minimal investment that was at stake.
Rent-to-Own, also known as rental-purchase, is a type of legally documented transaction under which the property is leased in exchange for monthly payment, with the option to purchase at some point during the agreement.
A rent-to-own transaction differs from a traditional lease, in that the lessee can purchase the leased item at any time during the agreement, and that the lessee can terminate the agreement by simply returning the property with a penalty. The buyer has a limited time, if any, to purchase the home.
Why apply for a bank pre-approval before you start looking?
Firstly, like most REALTORS®, it’s a lot easier for us to help you if we know what your budget is. That way, we can save you time by not showing you properties that don’t fit your wallet. Secondly, buyers who are pre-approved are much more likely to see their offers accepted. In short, as a REALTOR®, we know that if you have been pre-approved for financing, there is a much better chance of the deal going through.
Don’t waste time with homes you can’t afford – this is where pre-approval comes to play. It’s one thing to look at homes for ideas on paint, furnishings and design and another to look at a home in light of affordability. What meets your expectations may not meet your wallet and may mean you have to wait awhile before buying the home of your dreams.
Think of it this way, going shopping without a pre-approval is like shopping without your wallet, it’s a waste of time to you, the Agent’s time, and in many times the tenant or owner occupying the apartment who has to take time of their schedule to be there for the showing.
PRE QUALIFIED VS. PRE APPROVED
There’s a world of difference between these two terms. If you’ve ever been confused by the two, we’ll bring you up to speed on how they differ.
Getting pre-qualified is the initial step in the mortgage process, and it’s generally simple. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the size of the mortgage for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved.
Because it’s a quick procedure – and based only on the information you provide to the lender – your pre-qualified sum is not a sure thing; it’s just the amount for which you might expect to be approved. For this reason, being a pre-qualified buyer doesn’t carry the same weight as being a pre-approved buyer who has been more thoroughly investigated.
Getting pre-approved is the next step, and it tends to be much more involved. You’ll complete an official mortgage application and supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can tell you the specific mortgage amount for which you are approved. You’ll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.The advantage of completing these steps before you start to look for a home is that you’ll know in advance how much you can afford. This way, you don’t waste time with guessing or looking at properties that are beyond your means. It enables you to move quickly when you find the perfect place. When you make an offer, it won’t be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious – and could prevent you from losing the home to another potential buyer who already has financing arranged- or from losing a deposit, as many sellers will not allow this contingency.