OWNER FINANCING IN THE DOMINICAN REPUBLIC – Summarized*
Just about everyone knows about mortgages, or third-party financing, where a bank or other lending institution provides a loan that the PURCHASER pays back over time; However, when a BUYER cannot get financing through a lender (or just decides not to), sometimes the SELLER will provide financing to the BUYER.
Bank loans are challenging to achieve by a foreigner in the Dominican Republic if the foreign purchaser does not reside in the Dominican Republic; and/or cannot show enough proof of income, assets, does not have a healthy credit score.. Additionally, Bank loan annual interest rates can be very high between 9% -12% for a 20 year loan. Adjustable (or variable) Mortgage Rates are also common. Rates are set by the Dominican Republic’s Central Bank, which will fluctuate. Since 2008. Currently there is only one bank I am aware of offering a 20 year note at 7.0% (not including bank fees, and other strict terms). Meaning, even if you can secure a bank loan here, your APR could become a cause a default and be a financial risk to the property you are purchasing.
Owner Financing or Seller financing here operates very similar to a bank mortgage in North American (Canada and the U.S), however, are offered for a much shorter term. The BUYER pays the SELLER a pre-determined down-payment amount, then additional payments are paid, with a smaller interest amount, in regular pre-determined intervals until the loan amount is payed off.
It should be noted, Banks in the U.S. do not provide loans for property purchase in another country. This is because there are very little jurisdictions abilities by a U.S. bank in claiming the property located here, should there be a default. However, the best options for N. Americans, is (so far) they can still withdrawal any un-used equity in their home(s) to use towards the purchase of a property here.
Typical Owner Financing terms here, with a cash down-payment of 40% - 50% down, would be for 3-6 years, at 4-6% interest. Enough time to receive your investments, pension, IRA, 401K, SS, (Americans) or RRSP, CCP or OAS (Canadians) … 4-6 years could be the perfect timing for other assets to be freed up, or debts/ loans to be paid off.
Q. When Would You Use Owner Financing?
- When the BUYER is having problems qualifying for a bank loan here, and has little home equity built up, or little available from his current mortgage, and within his/ her home country. Owner Financing offers the BUYER another option. A BUYER might even have an easier time negotiating the home price, interest rate, or other details with the homeowner rather than through a traditional a bank, or other lender. In most cases the SELLER will not require a credit report, but may require "Proof of Funds" for the 40 - 60% downpayment before formulating a legal Finance Contract.
- The property SELLER is having trouble finding a BUYER. If the property has been on the market for over 6 months, or there exist several like-kind competition in the same neighborhood
- Once SELLERS decide to offer owner financing, they immediately have access to a whole new group of potential BUYERS with subtantial "cash in hand", but who may have orginally been discouraged from looking at the possibility of purchasing property here.
Q. How Does Owner Financing Work?
Owner Financing works exactly how it sounds – the property owner provides financing in the form of a loan to the person who buys their property.
The basic process usually starts with the BUYER and SELLER agreeing to the details or terms of the sale. These terms are then expressed in a written Purchase Offer (or Purchase Agreement) which must be signed by both parties before a legal Promise of Sale and Finance Contract are created by an Attorney.
This Purchase Offer will outline the details of the loan, to include the downpayment amount, the interest rate, the term of the loan, and other agreed terms and conditions (or contingencies); A default penalty will also be included for the BUYER and the SELLER should either side violate their pre-determined conditions established in the Purchase Offer, and carried forward within a fully signed Promise of Sale Contract and Finance Contract.
Q. What Are the Pros and Cons of Owner Financing for BUYERS?
For BUYERS, Owner Financing has the following Advantages:
- Closing a property sale can be quicker with seller financing. Since the loan doesn’t have to go through a number of financial and legal departments that typically would be associated with a lending institution or bank, the BUYER can take possession of their new property faster.
- The overall costs associated with selling the property can be lower. Without having to pay things like bank fees or appraisal costs, the cost to the BUYER is lower than it would be if they went through a third-party. Also, depending on the down payment amount required for the property, the agreed selling price may be more flexible.
- BUYERS have a financing option if the bank turns them down for a home equity loan. If a BUYER is unable to get a loan through a third-party like a bank, Owner Financing provides them with an alternative financing option.
- Disadvantages? Owner Financing through our Agency with the assistance of our trusted legal Attorney’s, eliminates most all concerns or disadvantages:
Q. What happens with the Title in the SELLERS names?
Good Question: Like a bank loan, the title would be transferred to the new PURCHASERS name(s), HOWEVER, like a bank, the title would reflect their is a loan on this property, so the PURCHASERS cannot resell the property until the mortgage is paid in full. Once Paid in Full, an Attorney will show proof of payment in full, and submit the appropriate documentation to the Register of Deeds, for a new title to be issued, with no mortgage.
Q. What are the Pros and Cons of Owner Financing for SELLERS?
For SELLERS, Owner Financing has the following advantages:
- It’s a great opportunity for a gain on investment through interest paid. It’s possible that the SELLER will earn more by financing the home to a BUYER, when calculating the interest made, with no lost time as the property sits unsold, and as the property ages and ownership costs continue.
- It’s a great opportunity for a gain on investment through rental income achieved. The Borrowers (BUYERS) are able to secure and retain rental income (less management fees) in exchange for the agreement to pay all ongoing cost of ownership. These terms are expressed in the Sales Contracts.
- A great opportunity for supplemental monthly income, which so many of our baby-booming retiree’s or soon-to-be retirees need. In case of death the inheritance laws in the Dominican gauranteed the property would automatically go to the owners heirs. This property may need to be addressed, and added in your ESTATE WILL, within your country, especially if you have no heirs, or you desire your assets here, in the Dominican Republic, to go to another person or persons you name.
- The property owner can sell the home “as is”. The SELLER can possibly avoid having to make costly repairs that they may have been an obligation if they sold the property in a way, other than owner financing. NOTE: Our FULL SERVICE AGENCY does provide an inspection by request, and depending on the offer or “as is” condition accepted, through our Project Management Department, we can assist with all repairs, upgrades, renovations, furnishings, etc. We have done this for numerous satisfied buyer clients. Very affordable here.
- The property may sell faster. Because Owner Financing means that more people potentially have access to purchasing the property through financing, meaning, the property will likely sell faster than it would without the Owner Financing option available.
Disadvantages? Owner Financing through our Agency, and with the assistance of our trusted legal Attorney’s, removes most all concerns or disadvantages:
Whether you are a BUYER or SELLER, Owner Financing is a very safe and viable option for purchasing or selling a property here in the Dominican Republic, and under the sound laws and jurisdictions of the Dominican Republic.
NOTE: Other countries have little or no jurisdictions as to real estate laws or penalties established here in the Dominican Republic (DR), just like the DR would have little or no jurisdiction to properties purchased by Dominicans in your country, and under your real estate laws and jurisdictions. As an American, I can proudly say Owner Financing works here, we have never had a default situation, hence helping many of our foreigners dreams come true; both BUYERS and SELLERS!
Q. How do I know if Attorneys in the DR are Ethical and looking after my (our) Best Interests?
All real estate contracts; Promise of Sale, Finance contracts, and the final, or Definitive Contracts, must be done by a legal firm, through an Attorney here (there is no Association of Realtors here… so there are no standardized and legal templates like in the U.S. or Canada). However, not all Attorneys are created equal. Some may not speak, read or write English, may not be from the East Coast area, nor may specialize in Real Estate law and Real Estate Sales and Finance contracts.
Since our very first Owner Financing sale back in 2010 we have had 100% closing success, with legal titles, and ZERO defaults or lawsuits because we are particular in selecting (working with) the best and most ethical Attorneys who understand the changing Real Estate laws here, YET who also understand North American ways and concerns. We plan to maintain this record, so we are additionally very careful in selecting the BUYERS and SELLERS we choose to work with. We do NOT refer our Attorney's to property seekers/ Purchasers, who buy through others.
Q. Interested in the FULL Owner Financing Overview? Great!
*This is just a summary. If you are a Prospective Buyer please “Contact Us”. We will ask you a few questions, and upon approval, you will be registered with our Agency so we can both feel more confident in our transparant relationship and ongoing communications. We can then provide even deeper advice and insight in determaining IF Owner Financing is right for you.
If you are an existing property owner (Seller), and your propertyis already Exclusively listed with Reliable Realty SRL, or you plan to list your property Exclusively with Reliable Realty SRL, please “Contact Us”.
If you have a Non-exclusive property listing with our agency, thank you as well. However, our proven and effective Owner Financing information is proprietary and available to our Exclusive Sellers only. However, we will be honored if you desire to change your listing agreement to from Non-Exclusive to Exclusive. Additionally, your commission rate will be reduced by 1% more.
If any of our Registered Prospective Buyers is serious about pursuing the purchase of any of our property listings, yet needs Owner Financing, and our Non-Exclusive Sellers decide they are open to this type of offer, our Agency can discuss Owner Financing with our Non-exclusive property owenrs in more detail at that time.
NOTE: Due to the crazy late 2021 to current selling market, 15 of those properties, with owner financing have SOLD. Currently there are only 2 condos with OWNER FINANCING offered. Both are 3BR penthouses on 2 levels, fully furnished, leveraged as vacation rental income properties. They are both priced over $300,000.
If you are interested in learning more about these to exceptional properties for sale, please contact us.
Thank you for your trust in our FULL SERVICE REAL ESTATE AGENCY!