Buying on a Budget: Part 4
In this series, Buying on a Budget, you will learn how to spot savings and where to look for them. You will learn about the real estate market in Mexico and how to decide what kind of real estate property you are looking for. This series will give you all the necessary tools so that when the right opportunity arises, you are ready for it. In this edition of Buying on a Budget you will learn about mortgages and other financing options that are available to you in Mexico.
Mortgages & Other Financing:
For someone buying real estate on a budget, one of the most important tools they can use is to find a mortgage or other financing to help with the cost of the property. Each financing option has distinct advantages and disadvantages, and you should carefully consider which option is right for you. If you would like to finance you purchase, you should advise your real estate agent so they can discuss all the options that are available for you.
Mortgages in Mexico didn’t exist until recently, when the Mexican government and banks began to realize the economic benefits of allowing Mexicans and foreigners to invest in properties. The idea of a mortgage in Mexico is still new, and the banks are exercising caution, releasing funds carefully, and often cancelling their current programs only to later introduce a new program. Additionally, developers realize that they could attract a larger number of potential foreign buyers if they offer a variety of financing options to their clients.
The following are basic financing options available to foreigners buying real estate in Mexico:
Mortgages in the Buyer’s Home Country:
This is a viable option that many Americans and Canadians choose when acquiring real estate in Mexico. The most common way is to re-mortgage your fully owned property back in the U.S. or Canada. The funds are then used to purchase your new Mexico property in cash, making the monthly payments to the American or Canadian bank that re-mortgage your house.
The biggest advantage of a re-mortgage is the lower interest rates that are available in the United States and Canada. You also get to work directly with banks in your home country and since the Mexico transaction will be done in cash there will be less paperwork and time involved. The disadvantages of re-mortgaging your property is that your equity will be tied up and the bank may offer you a smaller percentage of the property value.
Mortgages in Mexico for Non-Mexicans:
The most common mortgage lenders in Mexico are international banks such as Scotiabank and Bancomer. (related: Banking for Foreigners in the Riviera Maya: My Personal Journey). Both Scotiabank and Bancomer have suspended and reinstated their programs at various times since Mexico started offering mortgages to foreign buyers. Your real estate agent will be able to advise you of any banks with active mortgage programs at the time of purchase.
The biggest advantages of using a Mexican mortgage is the ability of financing up to 75% of the property and the flexibility of financing options such as fixed or variable rates, and 10 or 20 year terms. Some of the disadvantages are longer wait times, more paper work, and stricter property requirements (such as the minimum loan requirement of $100,000 USD). This will not be an option for those looking for an inexpensive property (under $145,000 USD), because of the loan requirements. However, buyers on a smaller budget will now have a larger range of property options to choose from with just a $45,000 USD down payment.
Seller or Developer Financing:
Many developers are offering their own financing options. The main disadvantages are that loan periods are shorter and the down and monthly payments are higher. The advantages of having developer financing are that it is convenient to set up with less paperwork, and the interest rates are very low or non-existent.
Those which offer their own direct financing will generally use one of the following methods:
- Lean on the Title: This means the title is placed in the owner’s name with a clause indicating that money is owed to the developer and when the payments are complete the lean is removed.
- Retention of Title: This means that the developer holds the title in their name until all the payments have been made, then the title is transferred to the buyer. This is used fairly often by big, reputable developers.
- Bank Trust in Guarantee: The property is placed in a trust where the developer is named the first beneficiary and the buyer is the second beneficiary. All of the terms and conditions are spelled out in the loan. This option offers greater protection for both parties.
Financing may not be for everyone, but it certainly gives you more opportunities for owning real estate in Mexico when buying on a budget. Financing your new dream home is possible and there are many options out there. All you need to do is let your real estate agent know and they will assist you.
The next edition of Buying on a Budget will cover location factors, choosing the right region and area for you. Be on the lookout!
Now, if you have any question about buying on a budget or if you are interested in any of the TOP MEXICO REAL ESTATE properties we have listed anywhere throughout Mexico, please feel free to contact our Top Buyer’s Representatives and we will be glad to help you find your very own piece of paradise.
And remember, here at TOP MEXICO REAL ESTATE…
We make it happen!