In Mexico, many expats use refinancing of their properties in their home country to buy properties here for cash, but there are financing options for buying real estate in Mexico available.
The three main options are owner-financing, developer-financing and mortgages.
Resales can be owner-financed if both parties agree. The collateral is usually the Mexican property. The seller or his/her bank trustee will have to handle a foreclosure procedure, if the buyer-owner cannot perform on the loan. The seller can be the primary beneficiary of the trust until the mortgage is paid in full. When full payment is paid, the bank has to recognize cancellation of the mortgage, and make the buyer the primary beneficiary of the property. It is wise for the primary beneficiary to always name heirs in the trust, so that the property will stay in the trust of the seller and be transferred to the secondary beneficiary (heir) without the need of going through probate.
Pre-constructions sales are very prevalent in the Puerto Vallarta market at this time. In this scenario, the developer will allow the buyer to make a down payment, usually 30 percent, and make payments through construction phases. After an 18-24 months average, the seller has received purchase funds and the buyer has possession. When the escritura is ready to be signed by the new buyer, final closing costs are paid and any hold-back from the purchase price paid to the developer. It can be a short wait of one month to a year to receive an escritura after obtaining occupancy while paying condo fees during the final phase of the closing process.
If a buyer cannot do all cash and the above options are not applicable, there are companies in our market who help with different mortgages on Mexican property.
Mexlend (Terence Reilly)
Financing for U.S. and Canadian citizens has been available for the past 15 years. The sources, rates and terms have changed, but one could argue that some of the current options are the best that have ever been available.
Now, instead of banks, private equity sources are extending loans to expats and other foreigners to purchase their dream homes. Most of these loans are in Mexican pesos, but the buyer should not let that hold them back, since the peso has historically devaluated against the U.S. dollar. This, in effect, will buy you more equity with your purchase if you are earning U.S. dollars and paying Mexican pesos.
Rates for Mexican peso five-year Adjustable Rate Mortgages (ARMS) can be as low as 2.43 percent in yearly cost to the borrower for the money. For those less adventurous, there are U.S. dollar bridge loans available as well. These loans will more conform to a Canadian or USD hard money loan, with interest rates starting at 12 percent with offer terms up to five years. All loans require a significant down payment of 30 percent or more.
Qualifying for these loan options is done through calculations of income and debt ratios, just as they are done in the U.S. and Canada. Minimum credit score required is 680. The Mexican peso loans will discriminate against the elderly if they are above 69, and they require physical exams, so you must keep this in mind while choosing what type of loan you need.
Cross Border Investment (Josh Rappaport)
CBI has been offering mortgage brokering services for purchasing Mexican properties since 2011. They have worked closely with lending sources over the years to develop mortgages for non-Mexicans purchasing property in Mexico. CBI is the only broker to offer mortgages through banks.
Borrowers document their income and credit from their home country (most often the U.S. and Canada, but other countries are acceptable) and similar underwriting processes used in those countries. It is not necessary for borrowers to have ties to Mexico – borrowers do not need bank statements, credit or residency status for Mexico. All the documentation requirements can be satisfied from the U.S. or Canada.
CBI has developed mortgage products directly with the lenders, including qualification requirements. They can advise borrowers whether or not they will be approved with great accuracy within two business days after receiving the income and credit documentation.
As of the date of this blog, the borrower needs to have the following: 30 percent down payment, plus closing costs in cash; U.S. or Canadian tax returns, paystubs, bank statements and credit report to qualify; and, the property needs to be ready to be deeded. Mortgages are not applicable for preconstruction.
CBI obtains the loan approval and also can be the closing agent for transactions. A closing agent does the notary work of originating the bank trust, obtaining the tax appraisal, no-lien certificate, obtaining paid water and HOA payments.
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his/her own due diligence and review.