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Financing Real Estate in Mexico

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Financing real estate in Mexico is done almost entirely in cash. Individual sellers most often have paid cash themselves and need their cash back at closing. But if needed, you may be able to qualify for a Mexican bank loan or a loan from a private lender.

Underwriting by Mexican banks requires, in most cases, a good medical report making you eligible for life insurance as a condition of the loan. Points on mortgages and administrative fees are additional to the normal buyer costs of the notary office.

A peso loan is attractive if the U.S. or Canadian exchange rate is in your favor. The current APR for a 30-year fixed rate mortgage is about 4.5 percent. This savings can offset some of the increased mortgage costs.

Sometimes a seller will finance their property, which requires a trust with the seller named as primary beneficiary and you as the secondary beneficiary. When the loan is paid off, recorded and the bank trustee has approved it in writing (trust has been amended in the fideicomiso), you become the primary beneficiary. By using a Mexican bank lender, you will be behind the bank as beneficiary in the trust until the mortgage is paid off.

Real estate developers, especially those catering to expats and other foreign clients, offer financing options to potential clients. In this case, all of the financing is done by the developer. Most commonly, the money you are paying the developer is what they use to build. In this market, a buyer can get discounts based on the amount of down payment he/she makes.

Most of the financing options will require 20 percent to 50 percent down, with the balance to be paid over the term of construction. For example, 25 percent down, 65 percent over 18 months of construction, 10 percent at occupancy, plus closing costs of notary.

You and your agent need to be disciplined and use a Mexican attorney to review the credentials and business and financial plans of the developer builder. There is a risk that you could lose the money you pay, so you will need to do thorough due diligence before you take the risk

Builders commonly will give you possession of the property with the final purchase price payment. You will have to wait for title, or fideicomiso trust approval and escritura. The risk is that the developer does not complete the condo regime or does not finish paying for the notary to create titles for each owner. Receiving your fideicomiso in the form of an escritura – the legal recorded document – can range from several months to longer, once the notary for the builder submits the paperwork to the public registry.

It is not over until you have a closing with the notary, and you have received your recorded escritura.

Any cash purchase in Mexico will not require a market appraisal, construction inspection or legal review of seller documents. You have to ask for this from your agent and have the seller give you documents for your attorney to review. You need to make sure that you use a qualified person to do the inspection, which is your expense.

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.

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