by Doug Jones
The dream of owning a home in Mexico is on the minds of more and more North Americans, as they experience all the natural beauty and rich culture this country south-of-the-border has to offer. Many North Americans are looking for a place where they can make their retirement nest-egg stretch further than where they currently live. The cost of living in Mexico is definitely much less expensive than where you may presently call home – with one caveat. This is true, once you have your housing expenses figured out. Real estate is rapidly increasing in cost/value. This is good if you already own a home in Mexico, and a reason to act quickly if you don’t.
Up until this year, the only way to purchase real estate in Mexico has been ‘cash-only.’ In spite of the ‘cash-only’ scenario, a LOT of real estate has been purchased by North Americans – especially in the last four or five years. More North Americans have discovered the Mexico experience, but it is just the beginning. Many baby-boomers have the vision of ‘Old Mexico’ in their minds – usually an experience of a border town when they were growing up. This is not the Mexico of today. Resort living near the ocean, and charming towns on the interior, as well as a family-oriented culture that is a throwback to the 50’s are what Mexico is all about. And word is getting out through the print media, as well as word of mouth. When someone finds their own little piece of heaven in Mexico, the next thing they begin to think about is which friends they want to persuade to move to Mexico as well. What better scenario is there than to be with your best friends, discovering a new life in Mexico?These dreams can come to a screeching halt when it comes time to purchase a home in Mexico. Most people don’t have a lot of cash just lying around to buy a second/retirement home. Many North Americans have given up on Mexico, or purchased homes much smaller than they would prefer based on limited cash availability. But don’t despair – home financing is now available in Mexico! This financing is looking more like what you are used to in the US and Canada, although there are still some differences.
The terms of loans in Mexico are a bit more restrictive than what you’re used to. There is still a greater degree of risk for lenders making loans in Mexico than in the United States or Canada. Higher risk equates to higher interest rates and a shorter loan term. At the time this article was written, interest rates are approximately 7.99% for US Dollar loans, with 30% down and a 20 year term. Interest rates for MX Peso loans are around 11.98%, 20% down, and a 20 year term. Although the MXP loans are a higher interest rate, you have the best of both worlds when you can earn income in the US or Canada, and make fixed-peso payments in Mexico. This is because of the 30 year history of devaluation of the MXP to the USD. What this means to you (should devaluation continue) is that it takes fewer and fewer dollars to ‘buy’ the same amount of pesos every year, so effectively your payment is going down.
The process of getting your loan approved is very much the same as in the US and Canada. You will be required to show sufficient income to qualify for your new home payment in addition to your existing monthly obligations. A credit report will be evaluated, and funds necessary for down payment and closing costs will be verified. These loans are very much a throwback to the way lending used to be done in the US – what we refer to as ‘full doc(ument)’ loans. Credit approval may take 2-4 weeks. The property is also appraised to determine value and condition of the property. Once your loan is approved, you begin to venture into areas different from what you know in the US and Canada.
In Mexico, the closing is done through a Notario Publico, which is very different from our Notary Publics in the US and Canada. The Notario Publico is essentially the gatekeeper of the entire transaction. They prepare the escritura (deed) which is the master document in the transaction. Included in the wording of the escritura are the terms of your fideicomiso (a bank trust required for all real estate transactions to foreign nationals buying property in Mexico), and the terms of your loan. There are many documents needed in order to close, and it can take, by our standards, a long time to get them. It is not unusual for the closing to take an additional four weeks or more after you have received loan approval. The loan fees for your loan are very similar to the US and Canada, although they may be a bit higher because of the additional work and difficulty of doing a ‘cross-border’ loan (lending money from the US/Canada on property in Mexico). The big differences in costs when purchasing real estate in Mexico are the fees and taxes to the Mexican entities. These can add up, so be sure to get a good estimate of what your total costs will be so you can plan for what you really have left over for a down payment.
Since financing is still very new in Mexico, real estate agents and sellers may be reluctant to use financing. As is true in the US and Canada, the success of your experience depends on the expertise of your loan officer. There are a lot of new companies opening up in Mexico, and a lot of ‘green’ loan officers. Personally, I have been on the ground in Mexico for just over a year, and I am much smarter today than when I started. There is a definite learning curve on doing loans in Mexico, so make sure you are dealing with someone who knows what they are doing. It is a good idea to pre-qualify yourself with your lender so you can present the seller with something that shows you are qualified to purchase their property. In many cases you will be competing with a cash offer (yes, many people still pay cash for their property in Mexico), so your offer to purchase will be much stronger if you can show the seller you are qualified for a loan – the equivalent to cash, but it will take longer to close than straight cash. Be sure to make your contract contingent on loan. Include enough time in your contract to make sure you can close your transaction. You do not want to have time run out in your contract, you haven’t closed yet, and a cash offer comes in when you’re out of contract. Sellers don’t want to take their property off the market and miss a potential cash offer, so you’re walking a fine line, unless you have a letter to present to them showing you can qualify for a loan. You can put two different dates in the contract – one is a date by which you need to receive a loan commitment that says you are approved for the loan, and a second date to close by. Usually, a seller will be comfortable with 30 days or less for you to get your loan commitment. If possible, get a total of 90 days for closing from your original contract date. Many lenders will say they can close in less than 90 days, and many times it can be closed in 60 or less, but it is much more prudent to get 90 days in your contract – just in case an item or two that is needed for closing is done on ‘Mexico time’ and not the time-frames we’re used to. This is a fact of life in Mexico!
Financing the purchase of your home in Mexico is a new reality. Work with a good real estate agent and loan officer – someone you can trust, and who has the experience to help you with financing. With a little patience, your new home in Mexico will become your own new reality.