How to Buy a Home in Mexico
Mexico is one of the best destinations for vacation homes, especially for buyers living in North America. You’re just a short flight away from warm weather and beautiful beaches, but with homes selling for a fraction of the price of homes in southern California, Florida, Arizona and Hawaii, you can afford to get a bigger, or better quality home within your budget. It’s also easy to generate income from your home by renting it out when you’re not using it, with destinations like Tulum, Cancún, and Playa Del Carmen bringing in millions of tourists every year.
You may be wondering: can I actually buy property in Mexico if I’m not a citizen or resident? Yes! There are now laws in place that allow foreigners to buy and own property in Mexico through a fideicomiso or bank trust. The trust protects your rights as an owner, and makes it easy to buy and sell as a foreigner.
Here’s our extensive guide to buying a home in Mexico:
The Pros & Cons of Buying in Mexico
- A few destinations in northwest Mexico are drivable, but for the rest you’ll need to fly. Look for destinations with direct or low-cost flights from your nearest airport.
- You can stay in Mexico for 180 days, or six months per year without a visa, though you still need a passport that has at least six months left before expiration, and a return plane ticket in your name. If you plan to stay longer or live full-time you’ll need to apply for a visa, or residency.
- The Mexican Peso has historically lost value versus the US dollar. It’s impossible to predict future home values, but you should not expect your home to appreciate in the same way homes in the US have in recent years, especially when you factor in the currency exchange. On the other hand, if you buy your home in US Dollars, you will have to pay tax on any currency appreciation when you sell.
The Buying Process in Mexico
Buying in Mexico follows a similar process to buying in the US in many ways. You search homes for sale, go on an in-person or video tour, and work with a real estate agent when you’ve found the one you want to buy.
There are a few key differences when you want to buy real estate in Mexico
- Less information, no certification: Agents in Mexico aren’t subject to any licensing or education requirements so you’ll need to be careful who you work with. And while some regions of Mexico have their own Multiple Listing Service or MLS, in most of the country there’s no place to easily look up homes for sale, or recent sale prices. At Far Homes, we only work with agents who have gone through our vetting process, and who consistently provide excellent service to our clients, so you can start off on the right foot.
- Agreements are in Spanish: Most real estate paperwork will be in Spanish, especially any final, binding agreements. With Far Homes you’ll always get an English translated version of the paperwork you’re signing, and work with English-speaking agents and lawyers.
- Most purchases require a bank trust: Your home will likely need to be purchased in a fideicomiso, or bank trust set up for foreigners buying property in Mexico. By setting up the fideicomiso, the bank trust will become the legal owner of the land. But you, the buyer, are the beneficiary with all the rights to sell, lease, or pass your property on to your heirs. Fideicomisos are good for 50 years, and can be renewed after that period. If the home you’re buying is already in a fideicomiso, you can take over that trust for the rest of the 50-year-period, which will save you on taxes, but you’ll need to make sure you know how many years are left before you have to renew.
You might read that you can also create a corporation in your country and buy without a fideicomiso, but we don’t recommend it because it’s more complicated, increases taxes for most people, and has restrictions on single-family homes.
Not looking for oceanfront property? If you’re buying a home more than 32 miles (50 kilometers) from the ocean, and 64 miles (100 kilometers) from a national border, you are exempt from this and may purchase the land without a fideicomiso.
- A lawyer will represent you throughout closing: In Mexico, an agent helps you find and tour homes, and will write up an initial agreement. After that you’ll hire a lawyer who will write up the final agreement, open escrow, and lead you through the closing process. Your lawyer represents you, so you’ll want to find someone you can trust. Far Homes partners with lawyers who are vetted for experience and track-record, so you know you’re working with someone you can trust.
- Notaries are a big part of the deal: A notary in Mexico, or notario, isn’t the same as it is in other countries. Here, a notary public is a licensed attorney who oversees the transaction as a neutral third party, representing the state. The notary will do a title search to make sure the seller has the authority to sell it and there are no liens or permit issues. They’ll also prepare paperwork and process the entire transaction, record the new title, and collect taxes and fees.
- Mortgages are uncommon: Mexico is largely a cash economy, with interest rates on loans for homes, cars and credit cards well above the rates in the US, if you can get them at all. If you have equity in your home, you can do a cash-out refinance with a lender in your own country to get money for your purchase.
- Know your fees: As it is in many countries, there are a number of fees you’ll have to pay when you close, which can range from 6% – 10%. Many of these are flat-fees, so higher priced homes will pay a lower percentage, while homes under $200k should expect to pay 9% – 10% on closing. These fees are always paid by the buyer, and are separate from the real estate agent fees paid by the seller.
In addition, you can expect to be asked to put 5-10% of the sale price into an escrow account, a much higher percentage than is typical in the US.
While you may plan to keep your home for many years, someday you will have to sell it, and there will be fees to pay then that you should keep in mind. First, you’ll pay agent fees of 3-5%. You’ll also need to pay sales tax, known as IVA to the Mexican government which is a capital gains tax. And don’t think you can skip out on this tax bill because you’re not a Mexican citizen – the notary will withhold funds to make this payment. If you’re a US resident you’ll also have to pay the capital gains tax back home, but fortunately you get to deduct the tax you paid in Mexico.
A few final recommendations for buyers
- Beware of any property that’s an ejido, or community land. While you can get permission from the community to purchase these properties, the legal rights are complicated and unclear. These homes tend to look like a bargain, but Far Homes does not support them because they are too risky for our clients.
- It’s not common to get a home inspection or home warranty policy so don’t expect that to come up in the process unless you specifically request it. You can also buy insurance, including property, liability, damage and earthquake, for relatively inexpensive prices in Mexico, with policies that pay in US dollars.