Because there has been a great deal of recent interest in buying property in Mexico, we often hear questions related to the financing of Mexican real estate purchases.
People will reach out to us to ask about the financing options available, and this is true whether the property in question is a retirement home on the banks of the Riviera Maya, a condo located in the heart of Merida, or a second home anywhere in between.
The good news is, it has never been easier for residents of the US or Canada to buy a vacation home in Mexico, and Zisla can help connect you with the Mexican home of your dreams.
Read on to learn more, and before you know it you could get a mortgage, find a property, and start living the life in the sun you’ve always wanted!
Financing Options in Mexico
If your plan is to sell your current home in order to retire south of the border, there is always the option of either using the proceeds from the sale of your home to finance your new property in Mexico, or to simply use some of the home’s equity to do the same.
Another option is to dip into retirement savings. And while almost 90% of home sales in recent years are done in cash, there are a number of other ways a person might finance the purchase of a property in Mexico as well.
There is always the option of working with a development company that offers their own financing plans, and many do. However, unlike what you might see with traditional financial institutions in the US or Canada, developers will not typically extend a mortgage that covers the entire cost (or even the majority of the cost) of the project in advance.
Instead, they will only offer a partial mortgage after you have made a substantial downpayment whether that is 30%, 50% or more. In fact, it is quite common for developers to require at least 50% of the down payment when you take possession, with the balance paid off over an average period of between five and eight years.
Typically the interest rate will be anywhere from 6% to 10%. While some projects offer up to five years of developer financing, along with some 36 or 48-month financing options, they are harder to find.
All told, if you don’t have access to the down payment amount upfront, or if you’ve had trouble borrowing the money from a bank back home, developer financing may not be your best option.
Using Mexican Banks
You don’t have to be a Mexican resident to get a loan from a Mexican bank, so this option is also worth a look.
Just as it is in Canada and the US, Mexican banks will require you to exceed a minimum credit score, have property damage insurance, copies of tax returns, proof of income, bank references, and all the other normal trappings involved in real estate transactions.
But in Mexico, banks will also expect you to have a migrant visa (an FM2 visa) or in some cases, a non-migrant visa (an FM3 visa). Using a Mexican bank comes with other conditions as well, and these conditions vary based on the type of Mexico real estate you’re interested in buying.
For example, banks in Mexico will only finance the purchase of real estate that is already titled (an existing home), meaning they will not offer mortgage products on new property or for pre-built construction projects.
Another difference is that, unlike in Canada or the US, a Mexican bank will only offer foreign buyers a mortgage amount worth 50% of the existing home’s value, instead of the typical 80 to 90% of a home’s value. Banks in Mexico also require that you get life insurance that covers the loan amount, a hurdle you wouldn’t normally face north of the border.
That said, even with all those drawbacks, if your income is in USD or CAD, then the idea of borrowing in pesos can be an attractive option, especially if you expect the peso to depreciate, a condition that would result in an overall lower payment over the long term.
On the other side of the coin, currency devaluation can work in the opposite direction as well, so anyone interested in getting a mortgage in Mexico should proceed with caution.
Start Your Property Search Today with Zisla
When it comes to buying Mexican real estate, there is a reason that most transactions are historically done in cash - it’s far easier.
Developer financing can require large down payments, and working with Mexican banks has its own challenges, requiring a great deal of paperwork and patience, with some banks taking up to a year to approve their mortgage products to foreigners. If you can’t make the financials work using a bank from your home country, it might be best that you wait until you’re in a better position to start your Mexican property journey.
But if you do have your financials in order and are you curious about where to buy property in Mexico, fear not! At Zisla, we have plenty of information to share, experience in the Mexican property market, and we’re always happy to share our advice on real estate trends, technical and legal questions, and all the latest information on how to find yourself the best property in Mexico for your needs.
By visiting our blog page, you can learn more about everything that the Yucatan Peninsula has to offer, find out if a US citizen can inherit property in Mexico, explore how much property taxes will cost you, and much more.