How to Finance a Land Purchase in Colombia?

For foreigners looking to buy land in Colombia, the issue of financing needs to be addressed. In this article, we’ll cover the topic of property financing options in Colombia in more detail.

Buying a house, apartment or land, is a dream for many Colombians. However, the high costs of property relative to the income levels of the residents of countries such as Colombia make it almost impossible for most individuals or families to make such an investment. However, for foreigners who earn income in other currencies (ie USD, EUR, GDP etc), the cost of land in Colombia is relatively cheap. This is particularly true when you’re looking at foreclosed properties or properties where the owner is willing to financing the purchase.

Let’s dive in and discuss the land financing options in Colombia in more detail.

Purchase of Land With a Mortgage

This is one of the most common financing types in Colombia. Getting a mortgage in Colombia is simply the process of requesting a loan. Most financial institutions in Colombia give out mortgages to qualifying individuals. Keep in mind that in order to get a mortgage, the property itself will be used as collateral against your loan.

Similarly, your credit history will be considered. This is nothing more than a document that institutions like Datacrédito and TransUnion in Colombia issue, where the individual’s financial history is revealed to lending banks. Credit checks are done in order to minimize the risks of lending money to unqualified individuals.

Another thing to keep in mind is that you must put a down payment on the property when you want to request a mortgage. The down payment is usually 30% of the value of the asset. As a general rule of thumb, this means you can obtain financing of up to 70%.

Keep in mind that depending the financial institution with which you request the credit, there may be more or less requirements. That is why you should analyze the interest rate offered by the bank compared to others, the percentage to be financed, and the requirements for the loan to be approved, since in order to obtain a mortgage loan you must have pre-approval from the bank.

After these steps have been completed, the individual will then search for the property or land that they are interested in buying, so that the documents of that property can be presented to the bank. During this time, the title transfer & release certificate will be processed, which should not take longer than 90 days. We cover title certificates in more detail in this blog post here.

The bank shall, after reviewing the certificate and assessing the applicant’s financial capability, proceed to request the inspection of an expert to appraise the property in order to determine its commercial value, as well as possible risks with the property.

It should be noted that the average interest rate is usually set at around 12%, this is the percentage of interest charged on your annual credit.

Securing Private Loans From Individuals To Finance a Land Deal

Another option for those looking to buy land in Colombia is to obtain a loan from a natural person. Due to the multiple requirements and obstacles often imposed by financial institutions, getting someone who can lend you the money with through a simpler process can excellent option. This is especially true for foreigners who might have difficulties working with local banks.

Private lenders are commonly used in countries like Colombia since there is a very strong culture of informality. Similarly, many locals won’t meet the strict requirements of financial institutions and private lenders tend to charge higher interest, but have less strict requirements.

However, it must be said that many people take advantage of the immediacy with which people require money, and establish interest rates far above what is allowed by Colombian law.

In Colombia the highest allowable interest rate is established at 26.12% annually, this is the maximum amount that a person or financial institution can collect from someone for the loan of money.

If the rate at which you lend the money is higher, that operation will be considered illegal. Let us remember that it is the financial authority of Colombia that is responsible for monitoring financial operations and thus ensuring that this rate is respected.

This is important because depending on the duration of your loan and the interest established by the person or financial institution that lends you the money, you will be able to calculate how much money you end up paying, the average duration of loans in Colombia ranges from 6 to 72 months, although it should be noted that there is not something that prohibits the period being greater or less than the aforementioned time range.

Can Foreigners Finance Land Deals?

For foreigners residing in Colombia, the same financing options apply. Although it should be noted that for many of the options, if not all, the foreigners will need to have a foreign resident card. In addition, they must prove purchasing power and credit history.

It should be noted that the conditions may vary depending on the foreigner’s situation. In the case of foreigners who are in the country under the status of pensioner, the foreigner must submit (with the credit application) a declaration of income or certificate of income in order to prove financial stability. 

In the case that the foreigner is an independent worker or entrepreneur, the foreigner will need to attach the last three bank statements (likely six), as well as the Chamber of Commerce certificate that shows when the company was registered.

These documents must be filed with the loan application at the office of the bank of the solicitor’s preference. In Colombia there are banks such as the Scotiabank Colpatria, which has a complete and specialized portfolio for foreigners who wish to apply for a loan at their bank.

In the case of foreigners wishing to make a purchase financed directly with the owner, they should bear in mind that the abovementioned usury fee applies not only to loan money but also financing on real estate. In addition they must verify that the ownership documents of that property correspond to who claims to be its owner, as well as establishing that the property does not have any problems that prohibits it from being sold.

Thinking of Buying Land in Colombia?

If you’re thinking about buying land in Colombia, reach out to us today. At Tycoon.to we specialize in helping foreigners acquire land in Latin American countries.