The national lenders in Nicaragua typically require a 10% down payment for a previously built house. For a construction loan, they would provide up to 80%.
When it comes to expats, the national lenders do not necessarily exclude loans made to foreigners, but foreigners are not necessarily included in as far as being able to obtain or have financing available. If I know someone in the bank and has a relationship, they would lend to me because I have that relationship. If you don’t have that relationship, they require a lot more paperwork and the process becomes a bit tedious.
Generally, the bank does not provide construction management, which means that the property owner should provide it, or risk the project not being managed properly. Their interest rate on the residential loans range anywhere from 8% to about 23%. The term of the loan can range from 7 years to 25 years.
For a commercial project, the interest rate would be about 12% to 14%, amortized over 7 years. I don’t believe I have seen any interest only loans.
As far as the Mortgage Store, we lend up to 70% of the total cost of construction, which includes the purchased lot plus the cost of construction. In this scenario, let us say that the lot was US $30,000 and the construction would be $70,000, so the total cost of construction is $100,000. We would lend $70,000. When we do the math, the equity position that we seek is essentially the lot. So the lot should be free and clear because that is the collateral. We cannot take a second position and most lenders in the second position will not subordinate to us, anyhow.
We lend on an interest only basis depending on the type of loan. If it is a residential loan, we range between 8% to 12% interest only. For our commercial deals, for bigger developments, we would charge on a “prime plus” basis. Usually the prime plus would be at 8% so if the US prime like right now is at 3.25%, we lend at 11.25%. The loan would be interest only or we can do an amortization up to 20 years for commercial buildings. We can also do 3 to 5 years; whatever the builder needs.
We do look at FICO scores, which, if the borrower is from the US, we have the ability to pull. However, we tend to be more equity-driven than FICO-driven. We just want to make sure that the person has the ability to make the payments, so we do ask for proof of 9 months reserve. This does not mean that the borrower has to put 9 months of interest in our bank account. It just means that the borrower has to produce a bank statement or a 401k showing that they have at least 9 months payments available, whether completely liquid or able to liquidated assets to make sure that at least we have 9 months covered.
We also look at the contractor as well. Our program offers construction with financing so if a person has a contractor that we can verify and reference, they can, by all means, use them. Otherwise, we will subcontract our approved contractors for the process. We find that that really aids our clients versus them going out and interviewing contractors that they don’t really know. We then look at the property and the property history in order to make sure that the owners have rightful title.
Essentially, our loan is a bridge loan, up to 2 years but we can extend it to 3 years. The purpose and our intent is that when the construction is finished, that we qualified all our clients to the standards of the National Bank. Our intention is that the loan stays in Nicaragua, which helps the country’s economic growth and economic stability. The economy has to grow inward and not outward and I believe that if the banks see that the property owner has 2 years established history of payments in Nicaragua and the borrower’s balance sheet is improved because they now have a $70,000 debt against the property that has a worth of let’s say $150,000, so their loan to value ratio is significantly reduced. This reduces the risk factors for the Nicaraguan bank. The local banks will now look at the foreign property owner differently than they would have if the foreign property owner were trying to obtain construction financing.
We also supervise the course of construction for the reason that we don’t want the construction well done so that the collateral is preserved.
For existing houses, we do have a product that that we intend on rolling out. We have had some builders ask us for their primary clientele or people that want to buy. Basically, what I would ask for is 40% down payment a loan term of 25 years, and out interest rates will be reduced to 8% or 9%. That is a product that we intend on growing into because we believe that there are more difficulties for expats to obtain construction financing than it is for them to obtain acquisition financing for an existing dwelling.
(Resort in Ometepe, Nicaragua, pictured.)
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