Maybe it was the weather and the beaches. Maybe it was the food and the culture. Maybe it was the relaxed pace and friendly people. Maybe it was a combination of all these factors that during your time spent in Mexico made you stop and think:
“I could live here.”
It’s an experience many people have every year in Mexico, when they come for a visit and are so taken with the experience they want to make a commitment to not just visiting the country, but to actually settle down and live in Mexico, for extended months-long stays or even permanently to run a business in Mexico or retire.
Home Financing in Mexico
Once you have made that commitment, inevitably you will have to consider what kind of living arrangement you’ll need, and that includes the idea of buying a house or condo. And while it’s true that buying property in Mexico can throw up a few more complications than it might in the United States or Canada, thousands of foreigners successfully do so every year. So we’re going to take a look at some of the options in financing your Mexican dream home.
For more information on how to buy property in Mexico, join me for a live webinar.
Buying a Home With Cash
Historically, cash purchases have been the way to go when buying property in Mexico. If you are fortunate enough to already have the money you need in the bank, this is straight forward enough.
But even if this is not the case, there are a couple different ways to go about home financing in Mexico and getting the money you need to buy the property you want outright. If you have made the commitment to permanently move to Mexico, the obvious solution is to sell your home in Canada or the US and use the money from the sale to purchase your Mexican property.
While it’s not necessarily the case a quality home in Mexico will come cheap, given the exchange on the dollar and the fact that in many cases – particularly if you are retiring – the desire in moving to Mexico will include “downsizing” from your long time family home, generally selling your previous home will provide you with enough cash to buy in Mexico. Particularly if the home you are selling is mortgage-free.
On the other hand, if your desire is to live in Mexico for an extended period of time – but not fulltime – and you still need a place to live north of the border, you could approach your bank for a home-equity loan and use that money to purchase your Mexico property. It’s an added benefit if you are able to arrange to rent out your first home while you are away in Mexico, and use the rental income to help repay the loan.
Buying a Home with Financing – Cross-Border Mortgage
One of the more recent trends in home financing in Mexico involves something called a “cross-border mortgage”. In these cases, Mexican banks that are subsidiaries of multinational banks lend US dollars through their US affiliates for the purpose of buying a home.
At the same time, more and more US-based mortgage companies are also offering this service.
Typically there are a few conditions attached to this type of financing that relate to the term of the loan, the interest rate and the minimum/maximum loan amount.
CBI Mortgages or Cross Border Investment Mortgages
CBI Mortgages or Cross Border Investment Mortgages, has provided mortgages and services for real estate investors in Huatulco. In our next article, we’ll report on that experience and why it was a good option. CBI Mortgages provides mortgages for second homes in Mexico using traditional mortgages with low-interest rates and a flat fee for qualified buyers.
As an example, another US-based, Mexico mortgage lender offers to lend up to 50% of the value of the property from a minimum of $100,000 to a maximum of $2 million. In other words, if you are buying a $300,000 home, you are able to get a mortgage for up to $150,000 toward the purchase. Other mortgage lenders have been known to finance up to 70% of the purchase.
Usually this type of mortgage financing can range anywhere from 3 to 30 years, with interest rates that are lower than you would get from a Mexican bank, although usually a bit higher than it would be to finance a mortgage on a home in the US or Canada.
An online search for ‘cross-border mortgages’ will return several different options, and it’s worth it to spend the time shopping around if this type of financing appeals to you.
Buying a Home With Financing – Mexican Banks
Perhaps you are in a situation where you are already established in Mexico, and you’ve made the decision that you want to stop renting and buy your own property. If this is the case, it’s likely that you already have an account at a Mexican bank (including some credit history with the bank such as a credit card), and then it makes sense to apply for a mortgage in pesos from your Mexican bank.
As mentioned, historically most home purchases in Mexico were made in cash, and banks were reluctant to provide mortgages because of the difficulty under Mexican law in foreclosing on the home if someone fell behind in the payments.
(This is similar to a situation we touched on in a previous article, How To Buy a Car in Mexico.)
However, just like car loans, in recent years more and more Mexican banks are offering to finance the purchase of a home through different mortgage products.
A number of documents will be required in order to apply for a Mexican bank mortgage for home financing in Mexico. Note that while tourists in Mexico are allowed to purchase property using their own money (or money obtained from a US or Canadian lender) most Mexican banks will require you to hold an FM2 or FM3 Visa in order to obtain a mortgage. See our article about How to Get a Visa.
Other personal documents include:
- Proof of income
- Bank references and statements
- Official identification and proof of address
- Birth certificate (and marriage certificate, if applicable)
Even though the “rules” in Mexico often seem more like guidelines, rest assured that when assessing a mortgage application, Mexican banks will follow up with all the normal credit checks to ensure you will be able to repay the loan.
Documents relating to the property:
- The sale contract
- Proof of down payment
- Copies of receipts for water and electric bills
- Copy of the deed
- Copy of architectural plans (if building the home)
Financial Details of Mexican Mortgages
Many Mexican banks will offer mortgages for 100% of the purchase price, although 80% to 90% is typically more common.
It’s very important to pay attention to the interest rate when taking out a mortgage. Undoubtedly, the fixed rate will be higher than you would find in the US or Canada, often in the range of 10% but even as high as 15%, for mortgages ranging from 10 to 15 years.
However, that being said, Mexican banks also offer lower-interest rate incentives in their mortgages, such as rate discounts for always making your payment on time. The other side of this coin is that if you are late or miss a payment, the interest rate can rise steeply.
Also, some banks will offer a much lower interest rate at the beginning of the loan, with a rate that climbs through subsequent years of the loan. The important thing here is to sit down and carefully calculate what the rate will be through the entire life of the mortgage.
One way that Mexican bank mortgages typically differ from US/Canadian bank mortgages is that there is no penalty for paying off the mortgage early. While US and Canadian banks would prefer you to be paying through the entire life of the original mortgage (because the interest you pay over 20-30 years is their profit), Mexican banks are often quite happy to have you pay the loan off early, so they can remove the risk of you defaulting off their books.
Again, just like with interest rates, it’s important to sit down and make sure you understand the fine print in this regard. It really goes without saying that if you’re less than confident in your Spanish fluency, it’s wise to engage the help of a trusted friend who is fluent when going through a mortgage contract.
The Wait for Mortgage Approval
Anyone who has spent a significant amount of time in Mexico knows that getting things done can sometimes….take awhile. This is part of the charm of Mexico, and goes part-and-parcel with that slower pace of life that made you fall in love with the country in the first place.
When it comes to taking out a mortgage to buy a property and financing your home in Mexico, things are no different. Because of this, it’s important to not enter into any kind of purchase agreement that locks you into a financial commitment before the loan is in hand. Many banks will give a “pre-qualification” – similar to a conditional loan approval in the US/Canada, but only then begin all the credit checks and such, and it could still be weeks before they release the funds.
The Role of the Notario
Although the terms are very similar, the role of the Notario Publico in Mexico is much more official than that of a Notary Public in the US or Canada. Notarios in Mexico must hold a law degree, and are appointed by the government to serve a specific region. It is his/her job when it comes to property purchases to essentially make sure all legalities involved with the purchase have been followed.
This will include checking the deed to make sure the property can in fact be sold, and there are no liens against the property, and that all taxes and fees relating to the sale of the property are paid, and all documents are properly filed.
Closing the Sale and Costs
So you’ve decided on your property. Your home financing in Mexico is in order. You’re ready to buy. The final thing you will need to address is the closing cost. Compared to the US and Canada, the list of costs and their expense can sometimes come as a surprise, with costs rising according to the value of the house.
In addition to the down payment, closing costs will have to be paid in cash. Obviously, then it’s important to be aware of what you will need to have on hand in order to finalize the deal.
Closing costs will usually include transfer tax, mortgage registration, property registration, tax appraisal and the notario fee. All of these costs are paid by the buyer. In addition to these, there will be the fees charged by your bank or mortgage lender.
Congratulations, You’re a Mexico Homeowner
It is often said the purchase of a home will be the biggest financial decision most people will make in their life, and so buying a second home in Mexico will probably be the second. Yet in many ways, it could prove to be more satisfying.
It’s an exciting commitment to a decision to take that step and really make that lifestyle change you’ve been talking about for years. Without the pressure to simply put a roof over your (and your family’s) head, you can relax and enjoy the process of finding just the right place, with all the amenities you want. You can then imagine the possibilities of decorating your dream home. It’s a chance to settle in and really become a part of your Mexican community.
And perhaps the most satisfying aspect of all is the thought you are no longer just a tourist in Mexico. You’re a Mexico homeowner. Let us know how we can help you find just the right home!