Monday, January 24, 2011

Paying for your Piece of Paradise in Mexico: Your options for financing

Historically, purchasing property in Mexico has  been  a cash sale, as there has not been a functioning mortgage and finance market until rather recently. 

The possibilities for financing a property is a common question that I receive, so I thought I would update everyone with the list of possibilities regarding financing a property in Mexico for those coming from abroad.  

There are some sources of funds from your home country and others available here in Mexico. The key to getting the best deal is to review the list, see what you may qualify for, shop the options, and then see which option will work the best for your purchase:

Financing Options from Home Sources:
  1. Using a Credit Line from your Home Bank:  Some buyers have an existing credit line available to use at their discretion from their home banks.  This is often a low interest, quick, and easy option.
  2. Use Another Property for Collateral in a Loan:  Foreign banks will typically not loan money using a foreign property as collateral for a loan.  However, if you have equity or own another property within your country, you can leverage that property for a loan from your Home Bank.
  3. Using your IRA Funds:  Some types of IRA investment funds can be used to purchase real estate.  It is a bit of a complex topic, and one that I will cover in more depth in tomorrow's blog post.
Financing Options from Mexican Sources:
  1. Co-Owners:  For some, going in on a property with family members for friends is a great solution for a part time home.  Mexican fideicomisos allow multiple parties to own properties.
  2. Developer or Owner Financing:  Some developers of new construction and some owners are willing to extend a period of time to buyers in order to facilitate a cash sale.  Neither of these entities are banks, so the term of the loan is much shorter (typically from 6 months to 2 years from most owners & up to 5 years from developers).  Additionally, if there is an interest rate could be a bit higher than what you would get from a bank on a 30 year loan.  The upside is that many will do 0% interest for a short term, no prepayment penalty, easier to qualify, and no loan fees.  So if short term will work, this may be your best option.
  3. Mortgage:  Traditional mortgages are a relatively new phenomenon in Mexico.  Recently, interest rates have come down to between 6-8% for those with good credit scores with a minimum of  25-30% down.  These loans are traditional, old-school style loans: no 0% down, no doc, or other shady loan schemes.  To qualify for a good rate, one needs an old fashioned good credit score and income statements.  Fixed Rate and ARM loan options are available, and most waive the any pre-payment penalty after 2 years.  [Most folks, when they first look into mortgages compare the rates that they have on their primary home with the rates of their potential mortgage in Mexico -- One important thing to note is that primary home loans are typically 2-3% better than second or vacation home loans.]
    1. Mortgages in Mexico is a broker that finds funds from various sources.
    2. Finance North America
    3. Stewart Title Mortgages
    4. Bancomer
    5. Scotiabank

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Amber Pierce-Schulz is the Broker/Owner of Mayan Riviera Properties, specializing in Puerto Morelos Real Estate and Puerto Morelos Vacation Rentals. We are members of AMPI and Federally Certified Realtors.