Belize Property: Financing Your Tropical Dream

Belize is a beautiful country with a lot to offer, including inviting English-speaking locals, tropical beachfronts, and financial benefits like low-cost properties and tax-free buying for qualified retirees. It is exceedingly easy to buy a home and/or land in Belize compared to elsewhere. A foreigner has the same rights as a Belizean citizen to property ownership. There are several ways to finance property in Belize, including local financing, offshore financing, and owner financing. Local financing is usually in the range of 10-18% interest with fixed terms of only 12 months. Every year the loan is closed out and then renewed at the current lending rate. Local borrowing is only permitted in Belize dollars, and because many Belize real estate transactions take place with US dollars, local financing is not always applicable. Non-residents can borrow US dollars through a Belizean offshore banking institution at effective interest rates of around 12%. Owner financing is where the seller acts as the bank, with terms set at 30-40% down, 5-10% interest, amortized over 5-10 years with a 3-5-year full balloon payment. There are also residential loans offered by banks in Belize, which enable citizens and residents to build or purchase retirement or vacation homes or condos.

Residential loans

Interest rates on residential loans vary from bank to bank and are determined by the criteria set by the banks. Most banks will lend up to 95% of the cost of the property or its appraised market value, and you will need to provide proof that you can cover the remaining 5%. You will also need to provide the bank with your latest tax return, current credit score, and financial statements. Audited financial statements will be required for any loan request over $2.5 million.

If you are borrowing as a company, you will need to provide a full set of certified corporate documents and updated financial statements. The company must also submit personal financial statements for all shareholders with equity investment over 10%.

The process of applying for a residential loan can take up to 4 weeks at a bank, and 8 weeks at a credit union or government bank. Once the application is approved, the bank will send a letter of offer outlining the loan conditions. After you sign the letter, legal documents will be prepared for your signature, and the loan funds will be made available.

There is a mandatory clause in all residential loans that requires the borrower and the building to be insured for the entire duration and value of the loan.

Owner financing

If you are interested in owner financing, you should inform your agent so that they can look for properties where the seller is offering this option. This method of financing is particularly attractive if you are a non-resident, as it may be easier to find a line of equity in your home country.

Another option for financing your property purchase in Belize is through a residential loan from a bank or credit union. These loans can be used to build or purchase a retirement or vacation home, or to invest in condo units, land, or completed structures. Interest rates on residential loans vary between financial institutions, and you may be required to provide collateral and meet certain criteria to qualify.

Additionally, if you are an investor looking to take advantage of tax benefits, you can consider using a self-directed IRA to purchase real estate in Belize. This allows you to hold rental real estate in an IRA to avoid taxes, as long as the investment has not been distributed to the IRA owner. Keep in mind that there are additional rules and restrictions for contributing to Belize offshore real estate IRAs.

Local financing

Local banks tend to cater to Belizean citizens, offering small home loans at lower interest rates than those offered to foreigners. However, there are also offshore banks located in Belize that will underwrite mortgages for foreigners, but at much higher interest rates (9-13%) and high loan-to-value ratios (50-60% LTV).

If you are a foreigner, it may be difficult to obtain a mortgage home loan in Belize, and it is recommended that you become a resident first. Even then, it may take a while, and interest rates are likely to be high. Local banks do not perform credit checks, but they require a high down payment, often around 40%. They will appraise the property, check your cash flow, debts, and net worth.

One option for local financing is a Residential Loan from a Belize bank. These loans can be offered to individuals or International Business Companies (IBCs) and can be used for various purposes, including financing condo units under the Strata Law, land purchase, building a home, or purchasing completed structures. Interest rates on residential loans vary from bank to bank and are determined by the criteria set by the banks. To apply for a residential loan, you will need to provide the bank with documentation such as your latest tax return, current credit score, and financial statements.

Another option for local financing is to seek a mortgage from a local bank. Caye International Bank, Ltd. is one of the most well-known and trusted banks in Belize that offers mortgages to foreigners.

Offshore financing

Non-residents can borrow US dollars through a Belizean offshore banking institution. Effective interest rates are around 12% and most offshore banks require a high degree of collateralisation. The minimum deposit required by banks to open an offshore account is usually US $1,000.

If you are not a resident or citizen of Belize and are looking for financing, you can borrow US dollars through an offshore bank. In Belize, Caye International Bank is one of the only offshore banks in the country. Interest rates with international banks in Belize are still much higher than people are used to in their domestic markets and are around 12% to 18%, and most offshore banks, when lending to people who are not Belize residents or citizens, require a high degree of collateralisation with a high down payment (often 50%).

Some people do acquire domestic financing in their home country through a line of credit or refinancing their home/mortgage.

Using a Self-Directed IRA or 401K

One way to manage costs, minimise the out-of-pocket investment, and ease the burden of taxation is to purchase real estate under a Self-Directed IRA or 401K. These structures are very easy to do in Belize and allow Americans to purchase an offshore investment property using investment funds. The benefits of ownership under these legal entities include access to capital for investment and less taxation on capital gains, thus earning greater profits from the Belize real estate investment.

Real estate investors (from the US) can hold investment real estate in an IRA or 401K to gain access to capital (without paying high taxation) and reduce tax exposure (as long as the investment capital has not been distributed to the IRA owner).

Under the IRS’s self-directed IRA rules, contributions to Self-Directed IRA accounts can be used to purchase real estate (commercial, residential, or raw land) inside and outside the United States. This allows investors to use Self-Directed IRA funds or a 401K to invest in Belize real estate.

However, contributions to offshore real estate IRAs are subject to additional rules. For example, while the property in your IRA can be rented to others, you can’t rent it out to your family. The property also can not be used for your own personal use (it has to remain strictly an investment).

Another advantage is that the rental income from an offshore Belize real estate investment through an IRA is deferred and can be made tax-free if purchased using a ROTH IRA. Under this setup, you could, in theory, collect decades’ worth of rental income and not pay US tax. You only need to worry about taxes when you distribute the income from the property to yourself in the future.

Bank account options

If you are considering purchasing property in Belize, it is recommended that you set up an account with one of the banks in the country. This will make the process of obtaining a residential loan much easier.

There are several banks in Belize that offer residential mortgages, including Belize Bank and Caye International Bank. These banks can provide financing for both citizens and non-citizens. However, it is important to note that local banks tend to cater to Belizean citizens, offering small home loans at lower interest rates. For example, local interest rates can range from 8% to 18%, with fixed terms of only 12 months. Local borrowing is also only permitted in Belize dollars, which may not be suitable for those purchasing property with US dollars.

For non-residents, it may be more feasible to obtain financing from an offshore bank located in Belize or from an institution in your home country. Offshore banks in Belize will lend in US dollars, but they typically require a high degree of collateral and charge higher interest rates (around 12%). On the other hand, your home country institution can work with banks in Belize to facilitate the transfer of funds.

If you are a foreigner, it may be more challenging to obtain a mortgage home loan in Belize, and you may need to become a resident first. Additionally, interest rates for foreigners tend to be higher, ranging from 9% to 13%, and loan-to-value ratios are typically lower, at 50% to 60% LTV.

It is worth noting that some larger developers in Belize offer financing options, which may be worth considering if you are looking for a short-term loan with a balloon payment at the end of the term.

When deciding on a bank account and financing option, it is essential to carefully review the terms and conditions, interest rates, and collateral requirements to ensure they align with your needs and financial situation.

Frequently asked questions