Financing Real Estate in Mexico? Is it possible?
It’s important to think carefully about how you are going to finance your property in Mexico. This article gives a quick overview of financing options available in Mexico for property buyers.
A good real estate agent in Mexico will be able to advise you, and some even have connections with financial institutions (banks, mortgage brokers) who may proffer financial solutions, depending on your personal circumstances, to help you complete your property investment in Mexico. Historically, the overwhelming number of real-estate deals in Mexico have been settled in cash. However, Mexican Banks are now beginning to offer mortgage products for the purchase of real-estate in Mexico, although significant deposits are required and interest rates are not as attractive as those in the US, Canada and Europe.
Mexico is becoming an increasingly popular place for foreigners to buy property, either as second homes, vacation or retirement homes. While traditionally these transactions would be conducted in cash, there is now increasing availability of financing for property, both in Mexican pesos and US dollars. Nevertheless, with the growing interest in Mexican property, banks and mortgage companies have begun offering “cross-border” loans, lending money in dollars at dollar rates for the purpose of buying property in Mexico.
Some people who are planning to retire to Mexico will sell their house in their home country and use the proceeds to finance property in Mexico; those who want to keep a ‘base back home’ may release equity from their existing home, rent it out, and use the dual proceeds to fund their retirement home in Mexico. Many foreigners are financing their property in Mexico using financial vehicles provided in the US or Europe and/or Mexico. This guide discusses the various choices to be made as well as the key elements to consider.
Foreigners Financing Mexican Property
If you’re a foreigner living in Mexico and seeking finance from a Mexican bank, banks will require that you have an FM2 (migrant) visa. However, banks will accept FM3 (non migrant visas) in some cases provided that you can produce your foreign bank statements which back up your financial circumstances. It’s not absolutely necessary to be resident in Mexico to get a Mexican loan in pesos.
Mortgage Loans in Mexican Pesos
Mexican banks have increased their mortgage lending in recent years (For Mexican Citizens with income in the country), lowering interest rates and extending the length of the loans. Obtaining a home loan in Mexico is a more complicated process, however, than in the U.S. or Europe. Part of the reason for this is that, in the event of a default, foreclosure on property is a lengthy and much more complicated process, so lenders take additional precautions. Typically, Mexican banks offer loans ranging from five years to twenty years, although some offer longer loans.
It’s unusual for banks to finance 100% of the value of a property – although 80% to 90% is common these days, depending on the value of the home in question. Rates of interest for the period of the loan are usually fixed for the term. Fixed interest rates vary with the length and type of loan, and currently fixed rates are between 11% and 15% a year.
Charges and Paperwork
As with most financial loan products, there are a number of charges and required documents to file in order for the credit to be released.
Charges: Common charges to open a mortgage account include: commissions, charges for conducting socio economic studies of potential borrowers (which some charge you whether or not the loan is granted), mortgage life insurance, property insurance, home valuation and Notary Public expenses (notary expenses are paid direct to the notary).
Checks and Research (Paperwork): Before they lend you the money, the banks conduct extensive investigations of their potential clients, including proof of income, checking the credit bureau for your credit history reports, as well as socio-economic studies to assess the risk of the loan.
Among common loan requirements are:
- A minimum age, usually 18 but it depends on the bank, and not older than 70
- Proof of income (dual incomes can be considered for couples)
- Bank references and recent statements
- Official identification and proof of address
- Birth certificate and marriage certificate if applicable
- Immigration documents, e.g. FM2 or FM3
Documents related to the property such as:
- The sale contract
- Proof of down payment
- Copy of the deeds (of the land in the event the loan is for construction)
- Copies of receipts for rates and water bills
- Copy of architectural plans
Don’t get yourself into a non-negotiable or time-limited contract to buy a property on the basis of a loan given ‘in principle’ as the bank may take longer than you expect to complete the necessary checks and may even refuse the loan at the eleventh hour. Even when the loan is agreed, it can take up to several weeks for the bank to release the funds. The key thing to keep in mind is: stay flexible and don’t paint yourself into any binding (time limiting) contractual agreements before the funds have been released by the bank.