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Mortgages in Mexico
Good News
If you have your sights set on a dream home or are contemplating the search for a vacation or retirement home, or
purchasing investment property in Puerto Vallarta, and haven’t been comfortable with the thought of doing an equity
take out loan on your American property, there’s good news for you. Mortgages are now available to American
citizens who wish to finance or leverage the purchase. Canadian citizens do not yet, regrettably, have similar benefits
when dealing with property purchases or investments in Mexico. Rumor has it that soon that situation will change for
those north of the 49th parallel, so keep checking back for updates.
What’s the reason for this change? It is mostly due to recent changes in regulations here pertaining to the foreclosure
of property financed by foreign lenders. Not to be overlooked is the buoyant real estate market over the past several
years and lenders wanting their piece of the pie. The opportunity in lending far outweighs the risk.
The ability to leverage your purchase presents prime investment opportunities and offers peace of mind to vacation
and retirement home buyers. Although the acquisition of property in Mexico has proven to be a safe and sound
investment, there are those who have approached the process with some degree of trepidation. The option to
mortgage a vacation home or investment property will undoubtedly stimulate market activity.
Lending Guidelines
The lending guidelines of banks and mortgage companies vary however; some will commit to only completed
residences, while others will offer construction loans or bridge financing for homes or condos under construction. The
maximum loan to value ratio is typically 70%, and 75 or 80% possibly available, with the odd lender suggesting a loan
to value ratio of 90%, contingent on your credit worthiness. The term of the mortgage is typically 15 to 20 years, but
could be adjusted, depending on the circumstances of the borrower. Interest rates are quite reasonable, but will be
moderately higher than prevailing rates available in the US or Canada. Both fixed and variable interest rates are
available.
A borrower can even choose to structure the loan in pesos rather than dollars. Some lenders will require loan fees -
some higher than others - so it’s wise to shop around, and some may stipulate that title insurance be acquired. As
noted elsewhere on this web site, a title insurance policy can be purchased by a prospective owner, benefiting the
owner, if the lender is not asking for it. An appraisal of the property will be required in all likelihood, contingent on
the LTV ratio. The cost of such will be considerably higher than back home as there are a limited number of appraisers
based here, and as market data is not easy to come by, it results in the time required to conduct an appraisal being
longer. Appraisers who are retained, but based in the US, may be able to group their assignments and thus lower the
fees by as much as half. I have heard fees quoted from a low of $750 to as high as $3000.
Ensure that you ask for, and receive, an estimate of costs and the interest rate in writing, as 'truth in lending laws' do
not exist in Mexico.
Mortgage Benefits
Developers of new condominiums and villas in this marketplace offer a pre-construction discount program. The
following is a typical outline of a payment plan:
Option #1 – 20% DISCOUNT off selling price
- 30% …at signing of the contract
- 60%...60 days from contact signing
- 10% …upon delivery of the new condo
Option#2 – 15% DISCOUNT off selling price
- 30%...at signing of contract
- 20%...60 days from contract signing
- 40%...equal monthly payments during construction
- 10%...upon delivery of the new condo
Option#3 – 10% DISCOOUNT off selling price
- 30%... at signing of contract
- 60%...equal monthly payments during construction
- 10%...upon delivery of the new condo
Your first impression may be one of surprise or even shock…20% of $500,000 is $100,000, and 20% of $300,000 is
$60,000. You might conclude, rightly so, that if you don’t buy during the pre-construction stage you could pay 20%
more (or less) than your neighbor who moves in just months before you do; furthermore, chances are good that the
prices will go up once the first phase of a project is mostly sold, or once it is sold out. Popular beach front residences
sell quickly, with choice units obviously going first. In this scenario described above, it is likely that only a handful - if
any - of less desirable units would be available upon completion of the first phase. If you buy before a shovel hits the
dirt, count on a minimum of 18 months until delivery.
It is worthy to note that some developers are better financed than others, and some are more reputable than others.
If you are wondering if these payment plans are negotiable, the answer is yes, sometimes, no in other cases.
Construction bonds may be offered, and may not be. Some developers will approve and accept progress payments and
some won’t. Payments to developers during construction may incur interest charges.
With the payment plan described above, that outlines 60% due within 60 days of signing the contract, it is plausible
that construction may not even be underway after 60 days. What to do? You, as a buyer, may want to get the
calculator out to ascertain your most advantageous payment options. Although you may not need a mortgage to
finance your purchase, when considering all of the circumstances, it may be to your benefit to mortgage the
property, even for just a short term. After all, leveraging real estate acquisitions is always wise, is it not? Finding a
buyer agent who will search out your best choices would be another positive course of action. My suggestion is to seek
out a lender who offers bridge financing and or progress draws, or alternatively use equity take out funds from your
American or Canadian residences. The best advice I can offer is to plan well ahead, and if a mortgage is preferred or
needed, obtain pre-approval for a mortgage on the best terms possible. As time goes by, and mortgage competition
increases, the lending terms may loosen up somewhat.
Mortgage Calculators
When calculating for a mortgage in Mexico, for approximate values use 8% and a term loan of 20 years.
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