Americans are used to leverage of mortgages, and do not typically put all cash into a purchase. In Mexico, many foreigners use refinancing of properties in their home country to buy properties here for cash.
Resales can be also owner financed if both parties agree. The collateral is usually the Mexican property. Seller or his bank trustee will have to handle a foreclosure procedure, if buyer-owner cannot perform on the loan. The seller himself 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 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 need of going through probate.
Pre-constructions sales are very prevalent in our market at this time. In this scenario, the developer will allow the buyer to make a down payment, usually 30%, and make payments through construction phases After a 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 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, there are companies here who help with different mortgages on Mexican property.
Terence Reilly with Mexlend:
Financing for US 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 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 USD, this in effect will buy your more equity with your purchase if you are earning USD and paying MXP.
Rates for Mexican Peso 5 Year Adjustable Rate Mortgages or ARMS can be as low as 2.43% in yearly cost to the borrower for the money. For those less adventurous, there are US 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% and offer terms up to 5 years. All loans require a significant down payment of 30% or more.
Qualifying for these loan options is done through calculations of income and debt rations, just as they are done in the USA and Canada. Minimum credit scores are 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 for which you will apply.
Josh Rappaport with Cross Border Investment:
CBI has been offering mortgage brokering services for purchasing Mexican properties since 2011. We have worked closely with our 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 US and Canada, but other countries are acceptable) and similar underwriting processes that one expects at home are utilized. 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 US or Canada.
CBI has developed mortgage products directly with the lenders, including qualification requirements. CBI can advise borrowers whether they should be approved with great accuracy and within 2 business days of having received the income and credit documentation.
As of the date of this publication, the borrower needs to have 30% down payment + closing costs in cash; US 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 loan approval and can be the closing agent in their 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 Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray