Honduras – Second Home Ownership and Financing

The ability of non-nationals to buy property in Honduras is a relatively new development. Honduran Constitution prohibited foreign ownership until 1990 when a decree was passed allowing foreigners to purchase properties in designated tourism zones established by the Ministry of Tourism. In a capsule, foreigners can own up to three-quarters of an acre subject to certain building requirements. Construction must begin on vacant lots within 36 months of purchase. Larger parcels may be purchased by forming a Honduran corporation.

Financing is available, but it is not common in Honduras. Offshore bank financing is expected to be available later this year as U.S. and European lenders and fund managers look to assist the equity-rich baby boomers who are fueling the rapid second-home growth and appreciation. Traditionally, local banks have charged 10-11 percent interest while requesting reams of unrelated loan documents. As an alternative to the red tape and high loan rates, home buyers have paid cash – usually via a home equity loan on their primary residence – or obtained financing from the seller or developer.

While every seller-financed situation is different, buyers usually pay 30 percent down with the balance payable within five years. Now, some local banks like Banco B.G.A. (www.bancobga.com) are making loans on approved properties with 10-year payback periods. The buyer typically is responsible for transfer taxes and some closing costs amounting to approximately 6.5 percent of the price if the property. Real estate agents charge 5-10 percent commission, usually paid by the seller. Property taxes are extremely low and usually run one-third of one percent of the value of the property. While U.S. dollars are common yet the official currency is the lempira (HNL).

Real estate agents say their typical second-home customer is a 40-60 year old American looking to retire in five years, followed by Canadians, other Central Americans and Europeans. Some U.S. buyers want to try out retirement by buying a second home now, using it a few weeks out of the year and renting it out for the remaining time.

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