Mortgage as rentista?

[craig]

Recently I have talked to a few banks about getting a mortgage to buy an apartment.

It is beginning to appear that the following is the case. Banks will loan to foreigners, but only if they are employed in Peru and receive a regular salary here. Some say that they used to consider foreign income for purposes of qualifying for a loan but no longer do so. Inasmuch as the rentista visa prohibits working in Peru this would seem to disqualify a rentista, regardless of financial situation, from obtaining a mortgage in Peru.

I would appreciate any reports of actual experience in this context.

[Sergio Bernales]

Sorry, Craig, I know this is not what you asked, but as far as I understand, it's possible to use foreign income as a source for a Peruvian mortgage if you are married to a Peruvian and have a carnet. I could be wrong about that.

The last piece of advice I heard about buying in Peru was to borrow the money in your home country. If you do not have sufficient savings, you have to borrow an asset there, ideally property, ideally the home of a sympathetic family member, or your own home if you have one. The advantage of this is that the interest rates are much lower and if your income comes from your home country, then you do not have to worry about currency fluctuations.

[tupacperu]

Recently I have talked to a few banks about getting a mortgage to buy an apartment.

It is beginning to appear that the following is the case. Banks will loan to foreigners, but only if they are employed in Peru and receive a regular salary here. Some say that they used to consider foreign income for purposes of qualifying for a loan but no longer do so. Inasmuch as the rentista visa prohibits working in Peru this would seem to disqualify a rentista, regardless of financial situation, from obtaining a mortgage in Peru.

I would appreciate any reports of actual experience in this context.

Back in 2010 Banks were willing to lend to foreigners with a 50% down-payment. I attempted to buy with my wife who is Peruvian, she had no income and they would not accept my offshore income. I will retire in 2 years and plan not to get a rentista Visa, but a Marriage Visa and use my Pension and SS income to buy. With the economic conditions, We are holding off until the economy stabilizes or takes a correction.

[craig]

Thanks for your reply.

I know this is not what you asked, but as far as I understand, it's possible to use foreign income as a source for a Peruvian mortgage if you are married to a Peruvian and have a carnet.

The banks have a mortgage product for Peruvians who live in the US (only, it seems) and are employed there so that they can buy property in Peru based on their foreign earnings. I don't think they will consider any type of income other than wages, you can't live in Peru and it is only for Peruvians (I don't know if they would consider a foreigner married to a Peruvian).

[craig]

Back in 2010 Banks were willing to lend to foreigners with a 50% down-payment.

I could do that. The banks don't seem to care. If the income is not in Peru and due to wage employment they will not consider it.

I will retire in 2 years and plan not to get a rentista Visa, but a Marriage Visa and use my Pension and SS income to buy.

What I have found seems to indicate that that will not be accepted. Only wage income for employment in Peru is acceptable. It does not matter how much income you have outside Peru; it does not count.

The one thing that they will do for a foreigner is the same thing that they will do for a Peruvian who makes a living from self-employment. They will calculate what your mortgage payments will be and open a special account. If you reliably make payments (at least as large as those for the mortgage) to that account for six months then they will then consider your application.

[craig]

Most banks seem to have a 65 year maximum age limit for obtaining a mortgage. It may sometimes be possible to get an exemption from this but otherwise this alone would exclude most rentistas from obtaining a mortgage.

[chi chi]

The last piece of advice I heard about buying in Peru was to borrow the money in your home country. If you do not have sufficient savings, you have to borrow an asset there, ideally property, ideally the home of a sympathetic family member, or your own home if you have one. The advantage of this is that the interest rates are much lower and if your income comes from your home country, then you do not have to worry about currency fluctuations.

Sure, the interest rates for a mortgage in Peru is m times much higher than in Europe and the US.

http://www.bankrate.com/national-mortgage-rates/

http://www.money.co.uk/mortgages.htm

[tupacperu]

Back in 2010 Banks were willing to lend to foreigners with a 50% down-payment.

I could do that. The banks don't seem to care. If the income is not in Peru and due to wage employment they will not consider it.

I will retire in 2 years and plan not to get a rentista Visa, but a Marriage Visa and use my Pension and SS income to buy.

What I have found seems to indicate that that will not be accepted. Only wage income for employment in Peru is acceptable. It does not matter how much income you have outside Peru; it does not count.

The one thing that they will do for a foreigner is the same thing that they will do for a Peruvian who makes a living from self-employment. They will calculate what your mortgage payments will be and open a special account. If you reliably make payments (at least as large as those for the mortgage) to that account for six months then they will then consider your application.

They were going to accept my foreign income (Carnet) and a 50% down payment. The deal was about to close, I just did not like that the apartment was being built and I had to pay the mortgage while I was not occupying it. So, we bought the Property in Pimentel cash instead. Came back to Miraflores 3 years later and they were still in construction phase for the apartment (I wanted to buy Duplex). We also were renting our home in Phoenix and the rental income goes into my wife's bank account, Peru was willing also to give us a mortgage based on the rental agreement and income.


This has risen to 70-75% for Peruvians only who are foreigners:

Financing a Property
Currently, local Banks only offer mortgages to Peruvians, foreign residents and Peruvian residents abroad to buy a property in Peru (initially only residents in USA and Canada). Among the advantages offered by the local banking system:
You do not need people playing the parts of intermediaries (debtors and/or owners), as the non-resident Peruvian is the only debtor and property owner.
Allows financing real estate in projects under construction or finished.
Financing up to 70% of the sales price or commercial appraisal value for Peruvians living in the USA and 75% for residents in Canada.
Provides financing terms up to 25 years.

[craig]

They were going to accept my foreign income (Carnet) and a 50% down payment.

It seems that they will not normally do that anymore. A couple of banks told me that they used to do that but don't anymore because their policy has changed to exclude from consideration any foreign income.

The only exception is for Peruvian nationals who are employed and living in the US (or Canada). If you are (1) a Peruvian national, (2) living in the US and (3) with income from wages there they will give you a mortgage to buy a property in Peru.

[Sergio Bernales]

They were going to accept my foreign income (Carnet) and a 50% down payment.

It seems that they will not normally do that anymore. A couple of banks told me that they used to do that but don't anymore because their policy has changed to exclude from consideration any foreign income.

The only exception is for Peruvian nationals who are employed and living in the US (or Canada). If you are (1) a Peruvian national, (2) living in the US and (3) with income from wages there they will give you a mortgage to buy a property in Peru.

Craig, do you have any family in the US who would be willing to put their property up as collateral? And you can borrow money in the States. I say this, because the interest rate I was offered in Peru was 10% and in Europe it was 3%. The difference in the monthly payment was almost double for the same mortgage.

[craig]

Craig, do you have any family in the US who would be willing to put their property up as collateral?

No. And I am in the process of divesting myself of all connections with the US, especially financial ones, property in the US etc. and would not want a US loan even if I could get it.

And you can borrow money in the States. I say this, because the interest rate I was offered in Peru was 10% and in Europe it was 3%. The difference in the monthly payment was almost double for the same mortgage.

Yes, the rates I have found vary between 9% and 11%. The rates would be lower in the US but I don't think they would be anywhere near 3%! I only need the loan for a year or two and am willing to swallow the extra interest cost for that time as the price of not having to move again.

I just sold my house in the US and shipped all my possessions to Peru. The arrangement I thought I had for a place to live and put my things fell through because my landlady decided that the weight (which is considerable) of all my books might be a danger to her house. That is what gives rise to the need to find another place. The house I sold was not worth much, not enough to pay cash for an apartment but enough for a very good down payment.

[Lucho]

I think Banco de Credito has a way. My wife works in there so if you still need some help let me know.

[Sergio Bernales]

Craig, do you have any family in the US who would be willing to put their property up as collateral?

No. And I am in the process of divesting myself of all connections with the US, especially financial ones, property in the US etc. and would not want a US loan even if I could get it.

And you can borrow money in the States. I say this, because the interest rate I was offered in Peru was 10% and in Europe it was 3%. The difference in the monthly payment was almost double for the same mortgage.

Yes, the rates I have found vary between 9% and 11%. The rates would be lower in the US but I don't think they would be anywhere near 3%! I only need the loan for a year or two and am willing to swallow the extra interest cost for that time as the price of not having to move again.

I just sold my house in the US and shipped all my possessions to Peru. The arrangement I thought I had for a place to live and put my things fell through because my landlady decided that the weight (which is considerable) of all my books might be a danger to her house. That is what gives rise to the need to find another place. The house I sold was not worth much, not enough to pay cash for an apartment but enough for a very good down payment.

I completely understand your position. Good luck getting the mortgage and I would really like to hear how you get on. This was an option for me, using my carnet, but it was so much cheaper to get a mortgage in Europe so that was what I did.

Best of luck.

[tupacperu]

Craig, do you have any family in the US who would be willing to put their property up as collateral?

No. And I am in the process of divesting myself of all connections with the US, especially financial ones, property in the US etc. and would not want a US loan even if I could get it.

And you can borrow money in the States. I say this, because the interest rate I was offered in Peru was 10% and in Europe it was 3%. The difference in the monthly payment was almost double for the same mortgage.

Yes, the rates I have found vary between 9% and 11%. The rates would be lower in the US but I don't think they would be anywhere near 3%! I only need the loan for a year or two and am willing to swallow the extra interest cost for that time as the price of not having to move again.

I just sold my house in the US and shipped all my possessions to Peru. The arrangement I thought I had for a place to live and put my things fell through because my landlady decided that the weight (which is considerable) of all my books might be a danger to her house. That is what gives rise to the need to find another place. The house I sold was not worth much, not enough to pay cash for an apartment but enough for a very good down payment.

I completely understand your position. Good luck getting the mortgage and I would really like to hear how you get on. This was an option for me, using my carnet, but it was so much cheaper to get a mortgage in Europe so that was what I did.

Best of luck.

I am going that route also Sergio Bernales, next Spring (USA). Selling my home in Phoenix and moving back to Peru. I am able to get a Carnet via my wife. Did you finally buy a place? We are planning to complete the construction of our home in PImentel, just looking for a reputable builder.

[craig]

I think Banco de Credito has a way. My wife works in there so if you still need some help let me know.

Thanks.

I am presently working with a woman at BCP trying to get a mortgage. They have not turned me down flat like the other banks so I still have hope there. They have the same rules as the other banks that would exclude me but they are willing to consider the facts and perhaps make exceptions for my case. I should have an answer in a week or two.

Depending on the results I might take up your kind offer.

[Sergio Bernales]

Craig, do you have any family in the US who would be willing to put their property up as collateral?

No. And I am in the process of divesting myself of all connections with the US, especially financial ones, property in the US etc. and would not want a US loan even if I could get it.

And you can borrow money in the States. I say this, because the interest rate I was offered in Peru was 10% and in Europe it was 3%. The difference in the monthly payment was almost double for the same mortgage.

Yes, the rates I have found vary between 9% and 11%. The rates would be lower in the US but I don't think they would be anywhere near 3%! I only need the loan for a year or two and am willing to swallow the extra interest cost for that time as the price of not having to move again.

I just sold my house in the US and shipped all my possessions to Peru. The arrangement I thought I had for a place to live and put my things fell through because my landlady decided that the weight (which is considerable) of all my books might be a danger to her house. That is what gives rise to the need to find another place. The house I sold was not worth much, not enough to pay cash for an apartment but enough for a very good down payment.

I completely understand your position. Good luck getting the mortgage and I would really like to hear how you get on. This was an option for me, using my carnet, but it was so much cheaper to get a mortgage in Europe so that was what I did.

Best of luck.

I am going that route also Sergio Bernales, next Spring (USA). Selling my home in Phoenix and moving back to Peru. I am able to get a Carnet via my wife. Did you finally buy a place? We are planning to complete the construction of our home in PImentel, just looking for a reputable builder.

Hi Tupac, I'm afraid I can't give you much advice on reputable builders, or constructing your own place. This is a route I want to go down in the future, build a place on a piece of land, but right now, labour and land around Lima seems too expensive. I think in Lima just now, the decent builders have got a lot on and the cowboys are the ones you have to rely on. I couldn't say how it is Pimental. You and your wife I'm sure would know more than I would. Perhaps you could let us know at some point in the future how you get on if you find a good builder.

However, if you're selling your home in the States and if you have no mortgage, well, I can only say sweet. Even though property prices have risen here, you're in a good position. One other option is to rent out your home in the States, rather than sell, and borrow against the value of your property. You then use the money to buy in Peru, thus in effect hedging against property prices in both markets, but getting the lower interest rates available in the States, so your monthly payments here are dramatically lower.

Also if you take out a mortgage in the States to buy in Peru, you effectively become a cash buyer here, so you're able to negotiate a better price for a place, especially if you're buying off-plan, or investing in property. However, you have use your home or other assets in the States as collateral and their value must be higher than what you want to borrow.

The rate of interest is also dramatically different and if you're able to pick a moment when the dollar's strong, you could really get much more for your money, even though prices have risen dramatically here. In the UK, at the moment, It's under 2% for a two year fix, about 2½% for a three year fix, about 3-3½ for a five-year fix and between 4-4½ for a ten year fix.

http://www.telegraph.co.uk/finance/pers ... years.html

The one drawback to having a foreign mortgage is whether you earn money in the local currency, or the currency you borrow in. Both have disadvantages and advantages. If the currency you get paid in drops in value against the currency your borrowing costs increase and of course, vice versa. If you're able to get rental income on your home in the States, then that might be a good way of ensuring your mortgage payments are not going to fluctuate with currency changes.

I think we're in slightly different situations, but I hope that helps in some ways. Good luck finding a decent builder.

[craig]

Most banks seem to have a 65 year maximum age limit for obtaining a mortgage. It may sometimes be possible to get an exemption from this but otherwise this alone would exclude most rentistas from obtaining a mortgage.

Interbank's maximum age limit is a bit higher than the other banks: 72 years old.

[craig]

I think Banco de Credito has a way. My wife works in there so if you still need some help let me know.

Thanks.

I am presently working with a woman at BCP trying to get a mortgage. They have not turned me down flat like the other banks so I still have hope there. They have the same rules as the other banks that would exclude me but they are willing to consider the facts and perhaps make exceptions for my case. I should have an answer in a week or two.

Depending on the results I might take up your kind offer.

After an interminable process, all options at BCP were rejected. In the end they were not willing to make any exceptions for me. The final straw seems to be that about a month ago BCP changed its maximum age from 71 years to 60 years, now making me too old to get any mortgage from them.

[craig]

After many months my mortgage application has also, in the end, been rejected by Banco Continental.

They had me doing an "Ahorro Hipotecario." This is where you make simulated mortgage payments to a special blocked account for a period of months to demonstrate your ability and willingness to pay the mortgage. They told me that this was a way that a foreigner, whose income came from outside Peru, could qualify. However, when I completed the test they rejected the application. The Ahorro Hipotecario was considered irrelevant. They said the down payment I offered was too small.

So I applied again offering a 50% down payment. Rejected again. Each time they kept asking for new requirements and each time I satisfied them they rejected the application again. It seems they simply will not give a mortgage to a foreigner no matter how well qualified. That is the bank's prerogative. But for some strange reason they are not willing to just say so up front or openly but prefer to waste their own time and mine.

[craig]

Based on my experience the way the bank mortgage application process works is the following.

You talk to a sectorista or funcionaria at a bank branch. She tells you what she thinks may qualify you for a mortgage. She does not actually know and cannot know. She goes by what she reads on the bank's web page, her own experience and what she guesses ought to be the case. Her job is to collect whatever information she thinks might be useful (which often is never actually of use), get an application from you and submit everything to a centralized office of risk management. There someone, or perhaps a committee, will accept or reject your application on whatever basis they choose. The local funcionaria has no input into that decision process and very limited ability to get any information about it.

[Alan]

After many months my mortgage application has also, in the end, been rejected by Banco Continental.

They had me doing an "Ahorro Hipotecario." This is where you make simulated mortgage payments to a special blocked account for a period of months to demonstrate your ability and willingness to pay the mortgage. They told me that this was a way that a foreigner, whose income came from outside Peru, could qualify. However, when I completed the test they rejected the application. The Ahorro Hipotecario was considered irrelevant. They said the down payment I offered was too small.

So I applied again offering a 50% down payment. Rejected again. Each time they kept asking for new requirements and each time I satisfied them they rejected the application again. It seems they simply will not give a mortgage to a foreigner no matter how well qualified. That is the bank's prerogative. But for some strange reason they are not willing to just say so up front or openly but prefer to waste their own time and mine.

What a tremendously frustrating experience, Craig. Amazing that with a 50% downpayment they still would not accept it. At the end of the day, what do you think their logic is? No one wants to stick their head out for an unusual case?

[craig]

What a tremendously frustrating experience, Craig. Amazing that with a 50% down payment they still would not accept it.

Yeah.

They did say something about my continuing the Ahorro Hipotecario for another 6 months. I'm going to do that (just out of orneriness) but I am certain that in the end, when I complete 6 months more, it won't make any difference. It is just more trabas in the hope that I will give up and go away.

At the end of the day, what do you think their logic is?

I have no idea, really. I am sure that there is no one who is not completely certain that I can and will pay the mortgage. However, that does not seem to be a relevant consideration.

No one wants to stick their head out for an unusual case?

Possibly.

It might be just bureaucratic blindness. Perhaps willfully so.

The banks have 2 or 3 set qualification procedures designed for the most common situations. I don't fit exactly into any of those.

[craig]

I talked to my contact at BCP again today and got an interesting insight as to why, perhaps, it is so hard for a foreigner to get a mortgage.

It seems that one of the things the central office people (who make mortgage decisions) are looking for is " Peruvian roots." Their idea of roots in Peru is something like: having a job in Peru, having a family in Peru, etc. In other words, they are not looking for someone employed in Peru only as a means of paying the mortgage but also, or even mostly, as evidence of roots in Peru. Etc.

Thus, an unwritten requirement for getting a mortgage appears to be to demonstrate that "you have roots in Peru." Otherwise, nothing else counts.

[fanning]

Wouldn't be the reason not to give a mortgage as that in case you don't pay anymore, the bank cannot embargo your income, as it comes from abroad.
If you have Peruvian income the bank has at least the guarantee that in case you don't pay they can force the employer to pay directly to the bank.
If you would 'escape' Peru and don't pay, you still have your income from abroad, while if you have Peruvian income and you would 'escape' Peru, you would surely loose your Peruvian job. This would be an extra guarantee that you won't 'escape' as you would loose your source of income.

On a sidenote, I heard a story of a Peruvian who got himself a whole bunch of (Peruvian) credit cards, he was about to get a citizenship in the USA, and he figured he would max out the credit cards, and use it as a starting capital in the USA. Unlucky for him, the USA immigration did a final (credit) check on the man, and found out he was declared 'insolvent' in Peru. Because of that they turned don't his citizenship application and had to come back to Peru. And now he basically cannot get a formal job anymore, because as soon as any of the banks he owes finds out, they immediately embargo his income.

[craig]

Wouldn't be the reason not to give a mortgage as that in case you don't pay anymore, the bank cannot embargo your income, as it comes from abroad.

That would make some sense. But nothing they have ever said to me suggests that is a consideration.

Bear in mind that we are talking about a mortgage here not an unsecured personal loan. The security is the property itself. In the case of default they would not normally garnishee my income (if I had any in Peru), they would sell the property (which is in Peru). Having to do that is something they would not want to have to do (hence concern for my ability to pay) and I am not sure of the difficulty of it in Peru but they would clearly be able recover everything owed to them (50% down!).

They have complained that they cannot "verify" (meaning: get a pile of paper with Peruvian rubber stamps on it) my income because it is foreign. But I have offered to provide apostilled proof and they don't seem to be particularly interested in that so I doubt that is a real concern.

[Sergio Bernales]

Wouldn't be the reason not to give a mortgage as that in case you don't pay anymore, the bank cannot embargo your income, as it comes from abroad.

That would make some sense. But nothing they have ever said to me suggests that is a consideration.

Bear in mind that we are talking about a mortgage here not an unsecured personal loan. The security is the property itself. In the case of default they would not normally garnishee my income (if I had any in Peru), they would sell the property (which is in Peru). Having to do that is something they would not want to have to do (hence concern for my ability to pay) and I am not sure of the difficulty of it in Peru but they would clearly be able recover everything owed to them (50% down!).

They have complained that they cannot "verify" (meaning: get a pile of paper with Peruvian rubber stamps on it) my income because it is foreign. But I have offered to provide apostilled proof and they don't seem to be particularly interested in that so I doubt that is a real concern.

Yes, that's exactly what I was thinking. I see being able to repossess the home as more important than the source of your income, if you already pass their threshold tests, unless the problem is they don't have enough faith in the legal process to evict you and get the property back quickly and easily should you default.

[craig]

I made another trip to BCP this afternoon and (finally) got a rather unambiguous negative answer.

They said they would not consider giving a mortgage to anyone without Peru source income. Moreover, they require a Peruvian work history of at least 6 months.

Their reasons included that they could not verify any income outside of Peru much less anyone's state of indebtedness in another country.

That essentially rules out anyone with a rentista visa.

I suspect that in six months this will be the same answer I will get from Banco Continental. Vamos a ver.

[craig]

I suspect that in six months this will be the same answer I will get from Banco Continental. Vamos a ver.

A few days ago, I completed the additional six months of payments to Banco Continental that I was asked to make. Today I visited the woman who asked me to make them. She was non plussed. Clearly she did not remember that she had made the request and/or did not expect me to actually comply. When she eventually responded it was as follows.

"Well... the bank does not give mortgage loans to anyone who does not have Peruvian source income. Foreign funds do not count."

There was never any point in any of it.

[craig]

However, altho none of the banks will give a mortgage to a rentista I eventually was able to buy the apartment I wanted using a private loan. Some Peruvian friends assembled the money to make the loan to me that I needed. In return, I am paying them about the same rate I would have had to pay a bank which is a much higher interest rate on their money than they could get from any commercial source.

[Alan]

Friends and family: the last resort against market failure.

Congratulations on your new place! A nice reward after a long ordeal.

[craig]

Friends and family: the last resort against market failure.

In this case "friends" are a market success not a failure. They are not giving me a gift or doing me a favor, they are making good money off the deal. The only thing that is special is that we trust each other due to long personal experience.

Furthermore, it is not a market failure for me not to get what I want from any business. No one owes me anything or is (or should be) obligated to do business with me at all.

The only complaints I have are about misleading and unnecessarily harmful behavior on the part of the bank representatives. And that was just a consequence of typical Peruvian culture and not anything to do with the market. If we live in Peru we have to put up with Peruvian cultural behavior with a (perhaps wry) smile and as much understanding as we can muster.

I do not know (and there is probably no way for me to find out) the exact reasons for current bank policies and/or how they have changed from what they did in the past. However, my suspicion is that the reason all the banks seem to be operating the same way now is that they are forced to do so by the government. All the products, policies and standards of the banks seem to be dictated to them by the State. [An example of this is the recent dictation of "no down" mortgages.]

Congratulations on your new place! A nice reward after a long ordeal.

Thanks. Now all I need is to get the plumbing working.