Mexico Offers More Financing Options For Non-mexican Buyers - Part 2

By Author: Thomas Lloyd
Total Articles: 503
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Important Considerations in the Property Search

While we are being offered bank mortgages as a viable new option for financing our Mexico Real Estate purchase, it is necessary to point out some important considerations that buyers must evaluate during this process. If buyers review the following points from the beginning of the search and purchasing process, consulting an experienced agent, they will considerably reduce the risks and problems for the buyer.

The first consideration is that, when financing a Mexico Real Estate purchase (regardless of whether the financing comes from Mexico, the U.S. or Canada), it is important to recognize Mexico's restrictions on foreign ownership of property. The majority of property owned by foreign investors in Mexico falls within the ‘restricted zone,' which is 100 km from any Mexican border, or 50 km from any coastline. Foreign ownership of property within these zones is possible through a type of real estate trust known as a ‘fideicomiso,' which gives the title ...
... of the property to a Mexican bank, while granting full ownership rights to the foreign buyer. This real estate trust and the ownership rights given through it are perfectly secure.

A benefit of the current market is that many properties are being offered at reduced prices. While buyers have great opportunities in this situation, they must also be prepared for the capital gains tax charged on the difference between the operation value and the market value. The bank will send an appraiser to determine the market value; if the property is bought below this price, the savings are considered profit and the tax is payable immediately by the buyer at the time of the purchase. While buyers cannot avoid this tax, they can find a qualified lawyer to prepare an intelligent, legal strategy to determine exactly how much tax they need to and do not need to pay.

Important considerations in the financing process

There are several other considerations to be made regarding the process of Mexico Real Estate financing. Mexican institutions require lower debt-to-income ratios than in the U.S. or Canada. Likewise, higher credit scores are required. These two considerations are a reflection of the fact that Mexican lending institutions are cautiously easing into this market. Mexico also charges a small tax (less than 2%) on bank mortgages. A buyer accustomed to the financing process in other countries will notice that the process time is longer here, and that the pre-qualification is valid for only 3 months, which means there is less time to complete the purchase. Also, only certain notary publics are accepted by the banking institutions so this reduces the freedom of choosing by the buyer and the seller. Finally, to receive institutional financing, the property must be insured by a policy that satisfies the institutions requirements.

While the considerations listed above may appear inconvenient, there are some further benefits arising from the mortgage option which help off-set these points. Many lending institutions offer a package payment; the monthly loan payment includes the fees for the real estate trust and insurance. This makes for easier annual administration, since a buyer can rest assured that all fees have been paid just by making the monthly payments. Likewise, the fact that more parties are involved in the initial process means that more lawyers will be watching the process and contracts to check that the buyer's interests are protected.

It must also be noted that the considerations listed above are not obstacles, but rather just the details of a different system. They only present complications when a buyer is not aware of the details of the system. For this reason it is essential to plan for these steps from the beginning of the search process, and to find a qualified professional to guide the process and review the steps. Financing from Mexican institutions is becoming more common for non-Mexican buyers, and will continue to become more common over the next ten years, as people realize and experience the benefits.

Continued in Part 3