Private Lender or Mexican Bank Mortgages or Developer Financing in Pre-Construction
Reduce Your Risk by Conducting Due Diligence
Mexico’s real estate market is almost entirely a cash market. Individual sellers most often have paid cash themselves, and they need cash back at closing. In this case, you need all cash, or you may be able to qualify for a Mexican Bank loan or a private lender.
Underwriting by Mexican banks includes in most cases a good medical report making you eligible for life insurance, as a condition of the loan.
Points on mortgages and admin fees are extra costs from the normal buyer costs of the notary office.
A peso loan* is attractive if the US or Canadian exchange rate is in your favor. This savings can offset some of the increased mortgage costs.
Sometimes a seller will finance, and this should require a trust with them named as primary beneficiary and you as second. 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. *With 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 foreign clients, offer financing options to potential clients. All of the financing is done by the developer. Most commonly, the money you are paying the developer is what he uses to build. In this market, a buyer can get discounts based on the amount of down payment he makes.
Most of the financing options will require 20% – 50% down, with the balance to be paid over the term of construction. For example, 25% down, 65% over 18 months of construction, 10% at occupancy plus closing costs of notary.
You and your agent need to be disciplined and use a Mexican attorney to review the credentials, business and financial plan of the developer builder.
The risk is you can lose the money you pay. So, you will want to be comfortable with your due diligence and decide you want to take the risk.
Builders commonly will give you possession with the final purchase price payment. You will have to wait for title or (fideicomiso trust approval and escritura). The risk is here that the developer does not complete his condo regime (in Jalisco) or finishes paying for the notary to create titles for each owner. Receiving your fideicomiso in the form of an escritura (legal recorded document) is from several months to longer, once the paperwork is submitted to the public registry by the notary for the builder.
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 an attorney who represents you to review. You use a qualified person to do the inspection which is your expense. No one is going to do this work for you without your requiring it and paying for it.
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