What are my financing options?
Twenty million foreigners visit Mexico every year. Of that number, statistics indicate that as many as 1,000,000 have bought second homes or vacation properties in Mexico. Traditionally, Mexico real estate purchases have been limited to investors with sufficient resources to buy real estate without need for financing. Unfortunately, not everyone can afford to pay cash for property in Mexico . So now that you've found your dream home - how are you going to pay for it? Fortunately, there are now several foriegn based mortgage companies that offer financing to qualified buyers who want to purchase properties in Mexico.
Real estate financing is a relatively new phenomenon in Mexico that extends the possibility of owning a home in Mexico to many who could not otherwise afford it. In the past, North American banks were reluctant to provide mortgage financing on Mexican properties due to the foreign investors' inability to obtain title to real estate within 50 kilometers of Mexico's coastline, which is where most foreign investors choose to buy property in Mexico .
To circumvent this limitation , the Mexican Government implemented a system whereby Mexican banks acquire the property and place it in trust for the sole use and enjoyment of the foreign property owner, or "beneficiary." The trust, called a "Fideicomiso," assures the foreign buyer of all the rights and privileges of Mexico property ownership, including the right to remodel, lease, mortgage, or sell the property at any time. Terms of the trust usually extend to 50 years, renewable in 50 year increments, which allows the buyer to bequeath the property to an heir. Due to these changes, there are now several American mortgage firms that offer financing for values up to 80% of the property 's appraised value.
Financing residences in Mexico have inherent advantages when weighed against the additional costs associated with mortgages, i.e., origination fees, discount points, bank appraisals and processing fees. All residential transactions in Mexico (regardless of who the purchaser is) require payment of a transfer tax on the declared value of the operation (which should be the purchase price and not what the seller or developer declares to minimize the capital gains tax,) notary fees, and recording costs.
These expenditures are the norm in any Mexican property transfer - and they are not inexpensive by U.S. standards. Foreign buyers must also pay for the permit from the Ministry of Foreign Affairs, a bank appraisal fee and an annual bank trust fee to administer the Fideicomiso. These expenditures are customary and required, but it should be noted that there is a distinct and protective benefit that purchasers receive in financed operations by foreign buyers.
Foriegn bases mortgage lenders want a higher standard of assurance that the loans they originate are secure and that the public deeds vesting the bank's lien interest are in fact valid and enforceable. In order to finance Mexican residential properties , there must be a transfer and conveyance to a Mexican bank trust registered by a Notario Publico, which establishes a recorded and renewable 50 year beneficiary interest for the non-Mexican buyer. A simple notation is made on the Mexican trust to protect the lender and provide the lender with sufficient collateral for mortgage financing.
Some lenders require title insurance through 1st american title insurance or Stewart Title, some require an application fee of 1.5%, and others ask for a flat $250 registration. Below is an example of mortgage financing lending rates, terms, and conditions for the purchase of property in Mexico . As in other places, rates fluctuate with the market.
- Down Payment: 20% minimum, with better rates available with down payments of 30% or more
- Points: 2.5 to 5 points
- Interest: 9.75% to 12% start rates, with fixed and adjustable rates available
- Terms: 15 to 25 year terms available
Of course each lender is different and other fees may apply, depending on the lender you choose.
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