Financing
Until recently, most real estate in Mexico was purchased on a cash basis. The mortgage
money that was available typically came with high interest rates. This has fundamentally
changed in the last few years. Good financing options are now available for real
estate, including undeveloped land, from both US and Mexican sources.
Given that mortgage lending is a comparatively nascent industry in Mexico, there
is no subprime market here. Housing for lower-income families is managed through
government programs. As a result, the Mexican mortgage lending industry is alive
and well, and is relatively free from the correction occurring in US real estate
markets. Stability is also supported by the fiscally responsible, sound macroeconomic
policies of the Mexican federal government.
"Mexico retains many advantages... including a strong commitment to orthodox macroeconomic
policymaking, an open environment for foreign trade and investment, and a large
and growing domestic market."
The Economist Industry Forecast for the Mexican
Financial Services Sector (09/07)
US Lenders Moving to Mexico
The outstanding property values available in Mexico are fueling a powerful surge
in interest among retiring baby-boomers. Savvy US lenders are capitalizing on this
emerging demographic trend by designing mortgage products specifically for Mexico.
The ready availability of title insurance through well-known US title insurance
companies has added momentum to this rising movement. A number of major US and Canadian
banks and lending institutions are aggressively pursuing the Mexican mortgage market.
This includes Silvergate Bank, Marshall and Ilsley, Wakovia, Textron, IMI Group,
Johnson Capital, GS Mortgage Securities, BBVA Bancomer through its subsidiary Laredo
National Bank, Collateral International, GMAC Financial Services (a subsidiary of
General Motors), and GE Money (General Electric).
"War anxieties abroad, sluggish returns at home, and Mexico’s recent recognition
as investment-grade by all three major US credit-rating agencies are behind the
surge in US institutional cash seeking a haven in Mexican real estate. According
to industry analysts in both countries, more than $1 billion has washed into Mexico
from US institutional investors over the past eight months, and a lot more is on
the way."
Mexico Real Estate is a Haven…
Wall Street Journal, Feb 2003
Mexican Government Support
At the same time, the Mexican federal government has recognized the critical need
for wider indigenous home-ownership to support economic growth and social stability.
Mexico is engaged in an unprecedented effort to promote economic reform and open
markets. Creating a broader housing base and mature mortgage lending market is seen
as essential to this effort. Furthermore, according to Banamex reports, mortgage
debt in Mexico represents less than 10% of GDP (in the US this figure is more than
90%). Thus, a large financial resource is being significantly underutilized. Under
current reforms, this will change dramatically in the next few years, with a corresponding
surge in economic activity.
Total Lending
WalMart has recently opened a Mexican banking subsidiary to take advantage of these
trends. In 2001, Citigroup purchased the major Mexican bank, Banamex (founded in
1882). This was the largest US-Mexico corporate merger to date at USD $12.5 billion.
"Mortgage lending by commercial banks rose by 35% in 2006."
Mexican Financial Services Industry Forecast
(September 2007)
The Economist Intelligence Unit
"To a large extent, building affordable homes and designing appropriate mortgage
products for families earning less than three mw [three times the minimum wage]
constitutes the “holy grail” of the Mexican housing industry."
Mexico: Sound Basis for the Mortgage Industry South of
the Border1
Lourdes Rocha Juárez and Sergio
Luna Martínez reporting for Banamex (09/27/07)
Window of Opportunity
US, British, and Spanish banks have taken over 80% of Mexican banks in the wake
of the 1994-1995 banking crisis, bringing an entirely new level of expertise and
sophistication to the industry. This includes a rapidly developing upgrade of the
mortgage lending industry that provides unique opportunities, as well as the need
for buyer education. Mexico does not have a readily accessible and accurate system
for tracking real estate sales prices. Until recently, a well-organized and regulated
professional real estate appraisal industry has also not been available. Given the
weakening mortgage markets in the US and the positive prospects for Mexico, financial
institutions have been highly motivated to fill these gaps by creating their own
corps of expert appraisors.
The Association of Foreign Investors in Real Estate notes that 53.1% of its members
rate the difficulty of finding attractive US real estate investment opportunities
as "somewhat difficult," with 37.5% rating it "very difficult."
The Association
of Foreign Investors in Real Estate 2006 member survey
In the Mexican market, it is essential that you verify that the people you are dealing
with are reliable and that you have well informed real estate consultants working
for you. This involves an extra burden of education beyond what would be required
to purchase US property. The trade-off for this due diligence is that you can, in
fact, safely purchase rapidly-appreciating assets at a fraction of what you would
pay in the US or Canada—including prime beach view locations with year-round good
climate. Leading local mortgage broker, Doug Jones, notes that average annual appreciation
in the Puerto Vallarta area is 15%.
"Though most US residents are aware of the growing “Latinization” of the United
States, a parallel phenomenon is taking place on the other side of the border. Already
at least half a million US expatriates and long-term visitors make their homes in
Mexico, plus another half-million Canadians [note that these are conservative figures
compared to other sources]. That number will soar as millions of retired baby-boomers
stampede south in the coming decades, remaking the cultural landscape…"
2/20/07 LA Times article on “Inside Mexico”
Click here
to see a brief video interview with Mitch Creekmore, Senior VP for Stewart Title
International, on the Mexican real estate market.
Mortgages For Mexican Property
Qualifying for a loan in Mexico requires similar qualifications as in the US. "Full
document" loan documentation typically includes minimum credit scores, proof of
income, copies of bank statements and/or tax returns, as well as mortgage, life,
and property damage insurance. Income from liquid assets, 24 months of bank statements,
and other alternatives can be used in lieu of full documentation. While it is not
essential to be a resident to receive a peso-based loan from a Mexican institution,
a visa is typically required.
Interest rates are modestly higher than in the US and Canada, varying from 7-8%
for short-term, adjustable loans to 8-12% (higher figures are for peso-based loans)
for long-term, fixed loans (10- to 30-year loans are now available). While peso-based
loans are more expensive, in the past this has been more than offset by a long-term
6-10% annual devaluation trend of the peso against the dollar.
Closing costs and fees are also more expensive, around 5-7% for cash deals and 8-10%
for mortgages (of this, mortgage broker fees should be no more than 2%). Ask for
an estimate of closing costs from your agent when you make your offer. Down payments
are usually in the 10-30% range. The good news is that the property taxes are very
low--a fraction of what you would pay in the US--typically USD $200-300 annually
and, in some cases, much less (schools are funded by federal, not property, taxes
in Mexico). Moreover, construction and housing, household services, quality medical
and dental care, and most cost-of-living expenses are much lower in Mexico.
Suggestions and Resources
Obtaining a loan in Mexico takes longer than in the US and Canada, typically two
to three months. For this reason, avoid binding agreements for specific deadlines.
To speed up the process, it is a good idea to pre-qualify with your chosen lending
institution before commencing a serious property search. It is also essential to
create a Mexican will, without which, probate in Mexico can be a long and cumbersome
process. A Mexican will is easy to accomplish and eliminates this issue.
The phone numbers listed in this section are all US numbers.
A great financing option for investment properties (but not personal residences)
is to diversify some your IRA portfolio into Mexican real estate investments.
Carrie Hart at
(727) 784-4841
Sovereign International is an industry-leading asset management company.
Click here
for an informative article on IRA-based real estate investing.
Click here
for the Sovereign International brochure.
For a good book on this subject, "Rich IRA, Poor IRA" by Thomas Phelan, call (919) 321-8448
or e-mail him.
A good place to start your Mexican real estate investment research is with the widely
available book,
Cashing in on a Second Home in Mexico, by Kelly and Creekmore. This book
provides a good overview. However, given the rapidly evolving Mexican real estate
and mortgage industry, some details do not fully reflect current conditions. Order
direct from the author at (206) 855-0605.
Here are a selection of lending resources that have been recommended to us. (This
does not constitute an endorsement; you must complete your own due diligence.)
Judy Langley at (214) 295-7656
This company is based in Dallas and Puerto Vallarta with other offices throughout
Mexico.
Phoenix Plush at (303) 229-2173
This Denver firm brokers loans on raw land, as well as on homes.
This is a local Puerto Vallarta company. Their website has a host of useful information.
(866) 937-4639
This San Diego lender was one of the first to enter the Mexican market and is a
leading lender by volume.
Aida Maynard at (800) 370-1130
or (205) 951-7330
This Birmingham company was formed specifically to service the lending needs of
US purchasers in Mexico.
(800) 226 2639
Citigroup subsidiary, Banamex, offers a variety of peso-based mortgage loans.
Useful Websites and Articles
Note that older articles may not fully reflect current conditions.
Click here for a
popular guide from Mexperience on purchasing Mexican real estate.
Click here for a library
of articles on the Puerto Vallarta MLS website.
The Bottom Line
Two key elements are essential for the successful purchase of real estate in Mexico:
- Educate yourself on the basics
- Find a real estate agent you can trust
Mexico does not have a regulatory and licensing system for real estate agents. Anyone
can hang a realtor shingle. This means that is it essential for you to locate a
reputable agent who is intimately familiar with the specific area in which you are
interested. Taxation protocols, for example, can vary widely between jurisdictions.
It is essential to find an agent with long-term familiarity with local customs and
procedures who is willing to provide you with the full advantage of this expertise.
To maximize your opportunities, your agent must also be up to speed on the rapidly-evolving
mortgage and regulatory environment. A good agent will be able to save you time
and money, help you avoid unnecessary risk, and make your entire experience far
more enjoyable.
We believe that Emerald Coast is the best source of information and opportunity
when it comes to purchasing real estate along the Nayarit Riviera. If we are unable
to meet your needs, we will refer you to another qualified, reputable agent. Emerald
Coast will educate you about all the elements you need to understand to make good
decisions and will also interface with local people and agencies to assure that
your transaction goes smoothly. We have been working in the local market for many
years and have facilitated sales to hundreds of satisfied property owners.
"We have been able to purchase a great piece of rapidly appreciating oceanview real
estate in San Pancho thanks to Emerald Coast. The seller was an extended family,
which faced a complicated situation when one of the principles died. Emerald Coast
was able to keep the deal together by helping the family sort this out. There is
no way we could have made this work on our own, without the help of Emerald Coast.
The respect in which they are held in San Pancho and their willingness to go way
beyond the call of duty allowed them to broker a successful purchase for us. They
also helped us avoid some significant added costs, beyond the purchase price, with
sophisticated advice on how to best structure the deal."
Lisa Rittel
Boulder, Colorado