For those of us in North America and other areas of the world, we often take for granted the idea of having access to low rate, affordable home loans, and home mortgages. If you want to buy a house you simply apply for financing and if all goes well you get to buy your home with only a small down payment.
However, it’s important to understand that Belize does not have traditional home loans available, especially to foreigners. But don’t worry, because there are ways to obtain financing and other creative purchase strategies that you can use when buying a home at Secret Beach.
Understanding the home buying process in Belize.
Belize has a ton of benefits for foreign property owners. It’s one of the best places in the world when it comes to off-shore diversification or real assets. You have strong ownership rights. All the agreements and paperwork are in English, there is no capital gains tax as well as many other reasons why Belize is a great place to invest in Real Estate.
But one of the challenges is that it’s mostly an all-cash market. Meaning that you will have to pay for your property purchase in full. This can be a large amount for someone to come up with. If you are buying vacant lots at Secret Beach for the purpose of “land banking” and letting the land appreciate over time, it might not be too bad.
But what about the real estate investor looking for short-term rental income with Airbnb or the lifestyle investor who wants to have a Caribbean getaway that can also be rented out when not in use by the owner? Maybe you just want to retire to Belize but don’t want to dump all that cash into your new house. You want to be able to maximize your returns and reduce your cash outlay by using financing leverage.
Since there are not any traditional mortgage lenders for Homes at Secret Beach, you want to look for properties and investments that offer seller financing, or developer financing. This is where the seller acts as the bank and lets you, the buyer, pay for your home purchase over time.
How does seller financing for Secret Beach Homes work?
There are both advantages and disadvantages when it comes to using seller or owner financing. But it can be a great way to get involved in the Secret Beach real estate market. We feel that the ability to participate in this amazing real estate market using owner financing will outweigh any potential risks or disadvantages that come along with this type of home loan.
Just like getting a loan from a bank; the owner financing that comes from a property seller will have terms and conditions that apply. Generally, you have a loan that is anywhere from 2-30 years in length and carries an interest rate of 6-12% on average.
Many of the seller financing loans also have what’s called a balloon payment. That means the loan balance becomes due after an agreed-upon period of time. Even if the mortgage is amortized over a longer period.
Let’s look at an example. Let’s say you are getting ready to buy a home at Secret Beach for $200,000 and the property owner is offering seller financing in the amount of $100,000 based on a 30-year amortization at 8% with a 5-year balloon; what does that all mean?
The loan amount is $100,000. This represents a 50% LTV (Loan to value) on the mortgage. The house is worth $200K and you are putting down 50% ($100K) and “borrowing” the remaining $100K from the seller in the form of seller financing.
The $100K loan from the seller will be amortized over a period of 30 years. Amortization is the breakdown of payments over a specific time period. The longer the time period, the lower the monthly payment will be. It’s common to offer a 20-30 year amortization on seller-financed loans as it helps to keep the monthly payment more affordable.
The other factor contributing to the amount of the monthly payment is the interest rate. In this example, we used 8% interest. Which to many North Americans and other citizens of developed nations may seem high. But in a place like Belize and Ambergris Caye where financing is not readily available, higher interest rates are the norm.
So you now have a $100,000 loan at 8% interest paying off over 30 years. However, most sellers don’t want to wait 30 years to get their equity. This is where the balloon payment comes in. Your monthly payment is based on the pay-off schedule of 30 years, but the balloon payment requires you to pay off the balance of the loan in 5 years. This is the “5-year balloon” used in the above example.
This could be considered one of the other disadvantages of using seller financing. The first is the higher rate of interest, the second being that you will have to have the balance of the loan paid off on or before the Balloon payment becomes due.
So the key here will be to have a plan in place that takes the eventual balloon payment into consideration. Because interest on home loans is biggest at the beginning of the loan period, it means that in 3, 5, or even 10 years, you may not have paid off that much in principal. Therefore when the balloon comes due, you will need to be able to pay it off.
The first is to pay the balance. If you have the funds, you will just pay your balance. Another option is to sell the property. Since several years have passed it’s a good possibility that you will have some equity built up and you can sell the property at a profit.
The only risk here is if you did not earn any equity or don’t have the cash to pay off the balance you could be forced to sell at a loss or use savings or retirement accounts to pay off the seller-financed loan.
What about foreclosure? A foreclosure is different in Belize than in the United States for example. In Belize, the government guarantees the property title. If you go into default on your loan, the seller will file with the government and inform you of the default.
After a period of 30-60 days without response or payment, you will lose the home and all down payments, and the property reverts back to the original seller. The foreclosure process is very “seller-friendly” so you must be careful to always make your payments when due and to communicate with the seller if you are going into default.
On the bright side, when it comes to seller financing it’s much easier to qualify for the loan than it would be with a traditional bank mortgage. There are usually no credit checks or income verification at all. So as long as you have the down payment and closing costs covered you can get into an owner-financed home loan.
The ability to cover the monthly payments is at your discretion and comfort level. You don’t have a bank looking at debt to income ratios or anything. It’s based on your own personal judgment of what’s affordable.
The Closing Process
The process of closing the loan and taking possession of the property is very similar to a closing in the US and Canada. There is an agreement between the buyer and seller. The contracts are given to a reputable title company or real estate attorney. (Always use a good title company or reputable real estate attorney for your real estate closings).
The title company will then perform a title search to ensure the seller has the right to sell and that the title is clear of liens and encumbrances.
Once the title search is complete and the documents are in order you should have a clear to close. This will be when the closing costs and property taxes are paid as well as any outstanding balances due from the buyer (or seller). Once all parties have settled, the property transfer is considered complete and you are now the new owner of your property.
You will have the full right and use of your property at this point. You can move in, decorate, or rent it out (provided you’ve been approved for rentals). If you bought land you can improve it or build on it.
Just like a bank mortgage all you have to do is make sure you are making your monthly payments and you will be able to enjoy your property without restriction for years to come.
Considerations
Of course, there is any number of scenarios that can add complexities or restrictions to a transaction. Are you buying a completed home? Is it a home that’s under construction? Is it located in a condo complex or a planned community? Each one of these situations can have different terms and useability.
Always know what you are buying and what your rights will be under the terms of the financing. Let the seller know what your intentions are so everyone is on the same page from the beginning.
Getting financing from a seller can be a great way to get into real estate in Belize. If you want to buy a home in Secret Beach, ask about seller financing and developer financing as well. Often times home builders and developers will offer short-term seller financing to help people get into a property with less cash down. You can own your home in Secret Beach now and keep the payments affordable with seller financing.
If you want to learn more about how to buy a home or rental property in Secret Beach, feel free to contact us with all your questions.