Mortgages in Mexico

Should I Hire a Lawyer for my Mortgage in Mexico?

Absolutely. Before you ever start considering your mortgage options, it’s best to get some professional assistance on your side. Whether you’re looking to buy your home outright or obtain a mortgage, a good lawyer, preferably from an established local firm, eases the transaction process and protects you, the buyer. Besides handling your paperwork, providing tax advice, and communicating with the proper government agencies, lawyers make sure your transaction is legitimate. They’ll research the chain of ownership and perform a complete title search. With their help, you can be sure your seller is authorized to go forward with the transaction.

They’ll also help you identify and handle any stipulations regarding your property that could complicate the purchasing process. For instance, most foreign buyers in Mexico are familiar with the restricted zone–the land within 100 km of Mexico’s borders and 50 km of the coastline. To control property in these areas, you’ll need to purchase land through a Mexican trust, or fideicomiso. You’ll have the same rights and responsibilities as normal property owners, but it’s another hoop to jump through, and one more reason that it pays to have a lawyer on your side.

It’s important to note that your lawyer does not fill the same role as the notary public, or notario. Notarios are lawyers with extensive experience who administer and finalize real estate transactions as representatives of the Mexican government. They complete the property registration and oversee the final transaction, but are only there to facilitate and validate the purchase, not to look out for your best interests.

Refinancing, Home Equity Loans & Cash: A Path to Paradise for Non-Mexican Citizens

Most of Mexico’s real estate deals consist of outright cash payments. This is, frankly, the easiest way to do business. Getting one’s hands on that much cash, however, often requires some creativity when it comes to refinancing and managing one’s mortgages. Mortgage rates in Mexico are often higher than in then US, as well.

If you’re a buyer with considerable equity in your US home, you can use it to efficiently free up the cash to cover that vacation home you’ve had your eye on in Baja. One of these options is cash-out refinancing. Basically, you refinance your home for more than what is left on your original mortgage. The difference in those figures becomes a lump sum of cash that you’re free to put toward another property. Depending on how much equity you have in your home, it could be a way to free up plenty of money to cover a vacation condo. You might even be able to refinance at a lower rate than you had before.

Home equity loans and home equity lines of credit are two other popular options for people looking to gain financial flexibility through their current home’s equity. In both of these situations, people borrow money against the equity they have in their house–using that equity as collateral. This is usually expedient and convenient, but can be hazardous if your income is unstable. Buyers employing this strategy need to exercise discretion and have a stable source of income that allows them to make multiple mortgage payments depending on their equity.

For a home equity loan, you receive a lump sum up front, then pay back the loan monthly at a fixed rate. It’s a great way to gain a large sum of cash quickly. A home equity line of credit uses your current equity to secure a line of credit from your bank. Basically, you’re pre-approved for a maximum amount of credit–usually around 75%-85% of your home value minus your outstanding mortgage payments. Then you can borrow up to that limit and pay it back with interest. This borrowing period usually lasts for ten years and can allow buyers to gain large sums of cash while also leaving them free to take out smaller loans as expenses arise. This is a great way for those anticipating retirement to use the equity in their current home to help them buy their future home. Remember that a lower cost of living in Mexico, overall should help with your overall transition, if you’re moving from a a country like the US or Canada.

Getting a Mortgage in Mexico as a Citizen

If you’re a Mexican citizen working with a local real estate agent, have found a lawyer, and have made an offer on a home– it’s time to start the process of securing home financing in Mexico.

Down Payments in Mexico

Larger down payments tend to be the norm in Mexico compared to their northern neighbors. It’s not unusual for buyers to finance only 50% of their home’s value. This is partly due to the lower relative real estate prices–the same amount of money you would normally put down covers a higher percentage of the sale price. Despite this trend, large down payments are not always necessary. Banks usually grant loans with potential loan-to-value rates of 50-70%—meaning that they cover between 50-70% of a home’s value and some finance as much as 90% in certain economic conditions.

Secure ESCROW Funds

You’ll be asked to put 10% of the purchase price into an escrow account managed by a third party. This deposit is usually refundable until all due diligence items have been satisfied. You can also use these funds as part of your down payment, once the loan is approved.

Gather Documentation

Again, to apply for a loan from a Mexican bank you generally must be a resident of Mexico. Either a monthly electric bill or water bill will confirm that you are indeed a resident of the country and provide proof of address. Then you’ll need your passport, birth certificate, and residency card–usually FM2(resident) or FM3(visitor). Pay stubs and bank statements from your last three to six months in Mexico, combined with a credit report conducted by the lender help banks assess a potential borrower’s ability and inclination to pay off a loan in a responsible fashion. Apart from these items, you’ll likely also need:

• An up-to-date RFC tax number (your unique tax code–essentially your Mexican social security number)*
• A CURP (the unique population registration code issued to all citizens and residents)
• A credit report from a U.S.-based credit bureau.
• An up-to-date medical certificate confirming your good health

Compared to financial institutions in the US, banks in Mexico are diligent when it comes to investigating their potential borrowers. Foreclosing on a property is a much more difficult and extensive process in Mexico than most other countries, so lenders are especially motivated to find dependable clients. Besides perusing the aforementioned documents, banks will conduct a socio-economic study of potential borrowers (at the potential client’s expense) before they ultimately grant the loan.

Closing Costs in Mexico

Mortgage or not, there are several other fees and costs associated with real estate transactions in Mexico to be aware of when you’re budgeting for your new Mexican home. See our guide to closing costs in Mexico for more detail.

Whether you’re looking to invest, hook that vacation hideaway, or make a permanent move, there are a multitude of ways to finance your home in Mexico. Finding the right one for you depends on your situation and the kind of property you’re looking to buy. Whatever type of home you seek, though, there are plenty of mortgage pathways that lead to the doorstep of your casa de Mexico.