Your Best Options For Financing The Purchase Of Property In Mexico
It is not possible for a foreigner to finance the purchase of a piece of real estate in most of Latin America. Local banks either don’t lend to foreigners at all or the terms are simply too unattractive to make sense compared with what you might be used to. In most markets, your only option as a foreign buyer is to pay cash…or to find a seller willing to finance himself.
This was the case in Mexico for a long time, for both foreign and local buyers, as evidenced by the fact that 95% of residences in Mexico are owned free and clear, with no mortgages held. However, today, that statistic is changing, as more banks are willing to lend.
Foreigners looking to buy in Mexico were first served by U.S. banks setting up operations in Mexico specifically targeting the North American (that is, north of the Rio Grande) market. These banks offered reasonable terms, similar to what you could get farther north.
Over the years, these American lenders have exited the market for various reasons. Some were bought out by bigger entities; others pulled out because they had limited cash following the economic downturn. Mexican lenders are stepping up to fill the market void.
The good news, as a result, is that, as a foreign buyer in this country, it is possible to borrow locally for the purchase of a second home, a full-time residence, or an investment rental. Loans are in U.S. dollars, which works out well, as most real estate in the expat and tourist areas is priced in dollars. (Note, though, that, if you’re living in Mexico and have local income, you can get a peso loan. The interest rate will be higher.)
Other terms are similar to what you’d be used to, with up to a 30-year amortization possible and both fixed- and adjustable-rate loans offered(most countries don’t offer fixed-rate mortgages for longer than five years). The bad news is that the maximum loan-to-value you can get is 65%, and current interest rates are hovering around 8%.
Still, being able to finance in another country at all is a big plus.
You’ll need to show the Mexican bank proof of income and a credit report, just as you would in the United States or Canada. The minimum credit rating most banks require is 680.
Seller financing is becoming more common in Mexico, as well. The terms won’t be as good as for a bank mortgage, but you’ll have less paperwork. Seller financing can be a good option if you’re looking to finance for a short period until you sell something up north or if you don’t think you’d qualify for bank financing.
The bottom line is that the foreign buyer does have options in Mexico for in-country financing, which is one more feather in this country’s cap as a top destination for U.S. and Canadian retirees.
For more details on financing in Mexico, you can contact MexLend. Representatives spoke at our Live and Invest in Puerto Vallarta Conference last week, and, as they explained, MexLend works with a broad base of lenders.