There are new ways to finance your property south of the border
Julia Wert Marrocco
Americans – especially baby boomers – are buying property in Mexico like never before. These buyers have figured out that they can achieve higher rates of return and appreciation south of the border than they can here at home. Owners of Mexican property are enjoying double-digit inflation with no sign of slowing.
Since changes in the fidiecomiso (the trust vehicle under which foreigners can own property in Mexico) in 1993, guaranteeing ownership rights, and since the availability of title insurance, beach property is being snatched up by developers at record pace.
The latest news is the recent availability of reasonable financing. Mexico itself, like many other countries around the globe, has no primary or secondary mortgage market. There is, therefore, virtually no Mexican financing for housing. In our country, 9 out of 10 homes have a mortgage. Conversely, in Mexico only 1 out of 10 has a mortgage.
In the past, the only realistic choice a buyer had when buying property south of the border, was to pay cash. That was okay, when Mexican property was cheap and mostly purchased by older U.S. retirees. Since the price tags weren’t high, they paid cash. Now that Mexico’s beachfront areas are prime purchase destinations for international investors, and entry level prices in upscale communities are $250,000 or more, real estate is getting out of reach for many U.S. buyers without the help of some financing.
American loan companies have been sitting in the wings. There is a lot of money to be made financing Mexican home purchases for American citizens. But prior to 2003, it was a risky proposition to enter the Latin American market, due to the complicated foreclosure process, red tape and risk involved in taking the property back in the event of a borrower’s default. Since then, a few U.S. lenders have begun introducing some financing options to American buyers.
Most Americans are still paying cash for their property in Mexico. The most often tapped source of cash is home equity. It is still the cheapest, easiest and quickest source of cash in today’s market.
Other ways people finance homes in Mexico include getting loans from relatives, margining stock portfolios, refinancing investment properties, borrowing against retirement funds, even getting reverse mortgages on their U.S. homes. Many buyers fund their purchase by taking in one or more partners who want to invest in the property. They split the rent proceeds during ownership and the appreciation when the property is sold.
Just in the last few weeks, more competitive financing options have begun to spring up: One loan being offered quotes interest rates at 7.99 percent. You can borrow 70 percent of the price of the property (up to 80 percent is allowed), and your payments will be amortized over 20 years. Loan fees for this type of loan are currently 2 percent. You will always pay a bit more for a loan on property south of the border, because the cost of foreclosure is higher.
As more U.S. lenders offer financing to Americans in Mexico, the loan programs are expected to become more competitive. One company just introduced new construction loans, loaning 70 percent of the price, at 10 percent and only 1 percent loan fee. That wipes out the challenge of interim financing during construction, as the construction period can be lengthy in Mexico. In a short time, we hope for the introduction of construction-perm loans, which will open the flood gates to pent-up buyers previously unable to figure out how to purchase their dream home on the beach.
Net-net bottom line is this: It’s easy to buy property in Mexico. It’s safe if you do your homework. You can borrow the money now, at reasonable rates.
How fast can you pack your bag?
Julia Wert Marrocco is director of Realtor Relations for the Villages of Loreto Bay, a sustainable development in Baja Mexico, and currently resides in the Pacific Northwest. She is a licensed Broker in Washington, Oregon and California and has earned 3 NAR designations. She is the founder of the National Investors MindTrust. She can be reached by email firstname.lastname@example.org.