A dream home on the “Island of Enchantment” is an enticing proposition to many homebuyers. But potential buyers should be advised that there are many special considerations when looking for a mortgage in Puerto Rico.
As in the mainland United States, in order to get the best interest rate on your mortgage in Puerto Rico, it is important to maintain a credit score as high as possible, with a debt-to-income ratio as low as possible.
The Mortgage Process
1. Credit Reports
Request credit reports from the three federal credit reporting agencies: Experian, Equifax, and TransUnion. Do this at least two months before applying for a loan. Carefully review them for any mistakes or omissions and request corrections, if necessary.
2. Loan Officer
Your loan officer can issue a pre-qualification, a document that indicates what types of loans you qualify for, the amount the bank will lend you, and your monthly payment. This can save much time down the road, when you are looking for a home. Visit your loan officer, and be sure to bring the following documentation:
- Copies of your tax information for the last two years
- Proof of employment and recent payroll
- Bank statements or evidence of funds for closing fees and down payment
- Creditor and debt information
- Retirement plan information
3. Home Search & Loan Application
Hire a local real estate agent in Puerto Rico, as not all listings are found online. Look for homes in your desired areas. Once you have made a decision, apply for a mortgage through one of the options in this article.
4. Loan Processing
A mortgage analyst will verify your income, debts, and assets to determine which mortgage product best fits your needs. They will also appraise the value of the property and determine what funds are available to close the loan.
The buyer and seller will sign the deed to the property before a notary, who will then inscribe the transaction in the property registry. The buyer usually pays for the appraisal, plot plan, title study, certified deed stamps and vouchers, flood certification, credit report, and various policies (title, hazard owner, etc.). The seller typically pays for the sales agreement fees, deed cancellation fees, real estate agent’s commission, and the original sales agreement deed stamps. With the mortgage process complete, you will now be the owner of your own Puerto Rico home.
Types of Mortgages Available in Puerto Rico
Fixed-Rate or Adjustable Rate?
A fixed-rate mortgage means the interest rate stays fixed at a percentage for the entire duration of the loan. The interest rate stays the same, meaning the monthly payment stays the same.
An adjustable-rate mortgage (ARM) means the interest rate changes on a set frequency (e.g., every year). Hybrid ARMs are ARMS that begin as fixed-rate loans for several years and then transition to ARMs for the remainder of the loan. With either of these types of loans, the interest rate can go up over time and stretch a borrower’s budget beyond its limit.
FHA loans are backed by the Federal Housing Administration’s mortgage insurance program. FHA loans in Puerto Rico are open to anyone, not just first-time homebuyers. Down payments with FHA loans can be as low as 3.5%, which means greatly decreased costs at closing.
With an FHA loan, down payment and closing costs can be paid in several ways:
- By a government agency or charitable organization to help low- and moderate-income families or first-time homebuyers
- By a relative
- By an employer or labor union
- By a friend with a documented interest in the borrower
Bear in mind that FHA loans are only available for existing homes intended for primary use. If you are looking to Puerto Rico for a second home, for vacation rental property, or to build a new house, FHA loans will not apply. Also, borrowers will need to factor the cost of mortgage insurance into their monthly payments.
Conforming loans, also known as conventional mortgages, are mortgages that adhere to the guidelines and loan limits of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie Mae/Freddie Mac mortgages typically require a minimum down payment of 5%, though two mortgages available through Fannie Mae only require a 3% down payment.
Though sometimes more costly, Fannie Mae and Freddie Mac loans are the most popular option for second-home purchases in Puerto Rico.
Other Mortgage Options
“Non-conforming loans” are mortgages that do not conform to the lending guidelines of government-backed loans such as FHA or Freddie Mac. This could be due to property condition, credit issues, or intended usage of the property (commercial, investment, etc.). As interest rates and closing costs are higher with non-conforming loans, they are more expensive than conforming options.
“Cooperatives” are privately owned Puerto Rican lending banks under the supervision of the Corporation for the Supervision for Insurance of Cooperatives in Puerto Rico (COSSEC). When in the market for land, wooden homes, or mixed-material construction, it is highly advisable to seek a loan from a local cooperative.
To qualify for a cooperative’s loan products, prospective buyers must first purchase stock in the cooperative. The advantage of cooperatives is that they are more flexible in the ways they grant loan approval and offer extraordinarily convenient options for both land and construction financing. The Cooperativa de Credito de Ahorro de Isabela and the Cooperativa de Rincón are both highly recommended in Puerto Rico.
Types of Lenders in Puerto Rico
These lenders can originate, process, approve, and close their own loans. Examples in Puerto Rico include Banco Popular de Puerto Rico, First Mortgage, and Scotiabank. These lenders have many locations throughout Puerto Rico and offer a wide array of mortgage products, making them very convenient. They are also quite technologically savvy compared to less corporatized lenders on the island.
These lenders do not have the ability to approve mortgage loans, though they are able to originate, process, and close mortgage loans. These lenders depend on primary lenders for approval and funding and thus are slower to process. Primary lenders may impose stricter loan criteria on borrowers if made through a secondary lender. Local Puerto Rico examples of secondary lenders include RF Mortgage and SunWest.
Buying HUD Homes in Puerto Rico
Some houses in Puerto Rico are owned by the United States Department of Housing and Urban Development (HUD), typically due to foreclosure. You must not have bought another HUD home within two years prior to your offer and must agree to occupy the home for at least one year. HUD does not directly offer mortgages on foreclosed HUD homes, but buyers can obtain financing through a traditional source, such as a lender or bank.
The Bidding Process
To buy a house owned by HUD, buyers must place an online bid on the property through an agent or broker who is registered with HUD. Buyers must provide their agent with a pre-qualification letter from a loan officer or lender confirming their ability to finance the home before submitting an online offer for said home.
Depending on the asking price of the HUD home, buyers are required to submit a deposit of between $500 and $1000 with their online bid. This deposit is returned if a bid is declined. If a buyer’s bid is approved, they will only have 24 hours to sign all forms, including the initial sales agreement.
Closing on a HUD property usually takes place between 30 and 60 days after the initial signing. HUD’s own purchasing contracts, deadlines, and requirements must be met to close on the property. HUD will even pay your broker’s commission, provided it is included in the contract.
“As Is” Properties
Bidding online for a foreclosed home can be a great way to save money when moving to Puerto Rico. However, there is a catch: HUD homes are sold “as is,” with no warranty, meaning HUD will neither pay nor correct any defects or damages on the property whatsoever. The new owner is required to make all repairs, and while repairs may be quite simple, an “as is” home could also require extensive, and expensive, renovation.
Be sure to pay for a professional home inspection before to submitting your online bid to buy a HUD home in Puerto Rico or elsewhere. It may save you a lot of money and spare you a lot of headaches.
Anticipating Potential Issues
English is the official language of Puerto Rico, as it is a U.S. territory. However, not everyone on the island is fluent in English. It is strongly advisable not to enter into the mortgage process unless you are fluent in Spanish or have a Spanish-speaking lawyer or other aide in your corner.
Locking in a Rate
Expect some difficulty with locking in a mortgage rate from a bank in Puerto Rico. Your 5% rate may be for the duration of the loan or unexpectedly rise to 5.5% a few months later. It may not be quite clear what you are getting.
Title-keeping and property records in Puerto Rico can be somewhat lax and disorganized compared to the mainland United States. Though not always, it is possible you may find some documents to be incomplete, and others may be missing. It is essential to work with a local expert in Puerto Rican real estate law and mortgages to avoid potential headaches during the closing process.
Refinancing Your Mortgage in Puerto Rico
In Puerto Rico, refinancing a mortgage means applying for a new mortgage. Once it is approved, you must pay new closing costs and/or additional fees. Consider whether paying these additional costs is worth the refinanced rate.
Online Resources for Mortgages in Puerto Rico
Mortgage Rates In Puerto Rico
Mortgage Lender List for Lenders in San Juan, Puerto Rico
PRelocate’s Real Estate Brokerage Services
If you’re looking to get a mortgage or purchase real estate in Puerto Rico, PRelocate can help. We’re a licensed real estate brokerage firm (license C-21696) with experience and extensive knowledge of the Puerto Rico real estate market. Our team is professional, responsive, friendly, and experienced, and with both native English- and Spanish-speaking staff, we can help you break down any language barriers you might encounter. We can save you time and effort by helping you find the right Puerto Rico property for you quickly and easily. In the meantime, you can view current real estate rental and for sale listings.
Get our help to buy, rent, or sell property in Puerto Rico
Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.