Investing

Closing Costs for Mexico Real Estate

May 12, 2022
Investing

Closing Costs for Mexico Real Estate

Published at : May 12, 2022
Closing Costs for Mexico Real Estate

Closing Costs for Mexico Real Estate

 

While buying real estate in Mexico is not overly complicated, it still is a little bit different from buying a home or investment property back home. That’s why any foreigners interested in buying real estate in Mexico will benefit from the assistance of a trusted partner, one that knows the Mexican real estate market and can help you navigate the process. 

 

For example, there are Mexican government regulations and foreign ownership rules to understand, as well as some financial realities related to closing costs that you should research before you get started.  

 

Read on for a brief overview of the real estate purchasing process, a reminder of the importance of having a lawyer and real estate broker involved in the process, and more details about the closing costs you’ll be paying. 

 

Before you know it, you’ll be the owner of some new property in the sunny land south of the border!

The Players Involved

In some of our other blogs, we’ve explained that most real estate transactions made by foreigners are done using a fideicomiso. Click here to learn more about why foreigners must use fideicomisos when buying Mexican real estate. 

 

Once you understand that element of the process, there are only a few central characters involved in any Mexican real estate transaction that you should be familiar with. They are: 

 

  1. The buyer (that’s you!)
  2. The seller 
  3. The lawyers of both the buyer and seller
  4. The notario publico (notary public)
  5. The trustee bank 

The Role of the Lawyer and Your Real Estate Broker in the Closing Process

 

The first thing to understand is that the job of your lawyer is to represent you, and only you. The Notario, on the other hand, is working for everyone involved. This means they work for the buyer, the seller and the government, all at the same time. 

The Value of Your Lawyer

The value of having a reputable lawyer involved is for peace of mind. They will be able to verify that everything goes to plan, and is legally valid. 

 

They will ensure there are no errors in the agreements you sign (see Steps 1 to 5 below), that your property title is properly registered, the any clauses are enforceable, and to do the necessary due diligence on the property. In short, they are indispensable, and will put you in the strongest position throughout the process.

The Value of Your Real Estate Broker

Your real estate broker has the greatest real estate expertise in the region, and knows about all of the properties and new constructions in the country. They work directly with the seller on negotiations, making sure you get the best possible deal. An experienced real estate broker, in collaboration with your lawyer, will look far into the future, and recommend strategies that will pay dividends for years to come. 

 

For example, because they know that foreign wills are difficult to enforce and time-consuming, they will suggest that you set up a Mexican will. This will make sure that any heirs to the property are clearly defined, and simplify the process of passing on your property to the appropriate party after your death. 

 

While most properties on the market are new builds, a smart real estate broker will also know that for resale property, you’ll need to request property appraisals and certificates of non-encumbrance, which indicate if there are any outstanding tax liabilities. In short, they have your back, and are indispensable in the process. 

Let’s Get Started: Reserving a Property

Have you found a property that you love? Great! Before you make an offer, you’ll need to reserve it by making a $5,000 USD deposit. This will lock in the advertised price and reserve it for a period of up to 30 days. Don’t worry - the deposit is fully refundable.  

Buying Mexican Real Estate: A Five-Step Process

Step # 1: The Initial Offer & Negotiation

Similar to a “promise to purchase” agreement, here you will inform the seller of your firm intention to purchase a property. Having a real estate representative to negotiate with the seller on your behalf is a huge plus here. They will ensure that any agreements are recorded in writing, which helps avoid any misunderstandings between the buyer and seller regarding terms and conditions of the sale like the price, the plans for payment, the deposit requirements, deadlines, etc. 

Step # 2: The Promissory Agreement

Also known as the contrato de promesa de compraventa, this is a legally binding document that is essentially a hard copy of Step 1 above. It sets out a timeframe during which the buyer and seller agree to execute the purchase contract, and outlines all the details of the transaction after the negotiations have been completed. We highly recommend that your lawyer verify that all the details included in the agreements are error-free, legally valid, and that the included clauses are enforceable. 

Step # 3: Setting Up the Trust (Fideicomiso)

Also done in collaboration with your lawyer, in this phase you should take important steps. You’ll need to apply for and obtain the appropriate permit from the Federal Ministry of Foreign Affairs and register with the Public Registry of Property and the National Registry of Foreign Investment. After that, you should set up a Mexican will, and finally, set up the trust (fideicomiso). 

Step # 4: Delivery

Here you’ll perform your final walk-through of the property and sign a delivery statement that confirms this day as the official delivery date of your property. For new builds in Mexico, the property is actually delivered before the title is transferred to your fideicomiso (the title transfer only occurs in Step 5).

Step # 5: Closing (Irrevocable Trust Agreement)

At this point, the titles are officially transferred into your newly created trust (fideicomiso). Once all the closing paperwork has been prepared, you will receive a notice that will inform you of the due date for the final closing costs, which include the acquisition tax and other related fees. After that, the title is transferred to the bank, and the local public registry issues the final deed.

Closing Costs

 

When closing, the real estate agent will typically provide you with a closing cost estimate. These costs are always the responsibility of the buyer to pay. Closing costs will usually end up being equal to between 7% - 8% of the total purchase price of the property

The reason the agent can’t give you an exact number up front has to do with the fluctuating exchange rate. The property’s value is measured in USD, but the property is always registered in Mexican Pesos. You’ll be expected to advance around half the expected fees to the notary in order for them to cover any out-of-pocket expenses.

 

This is how closing costs breakdown, piece by piece. 

Transfer tax (Property Acquisition Tax)

A 3% state tax you must pay to acquire the property.

Public Notary’s Fee 

This fee varies in Mexico, but is normally $3000 + managing fees of about $150.

Trust (Fideicomiso) Permit 

This will cost approximately $1180, and is paid to the Department of Foreign Affairs Mexico City.

Trustee Bank Acceptance Fee

This acceptance fee of $400 is paid to the Trust Division of the Trustee Bank you end up using.

Trustee Bank Annual Trust Fee 

Similarly, this $400 is paid to the Trust Division of the same Trustee Bank. This is an annual fee, and will be included in your closing costs. 

Appraisal for Future Tax Assessment

This fee will vary based on the size of the property.

Registration Fees in the LRO 

Registration Fees in the Land Registry Office (LRO) are about 0.5% of the price of the property.

Non-Encumbrance Certificate

This fee, paid to the Land Registry Office (LRO) is only $24. 

Preventative Notice Advice 

Another small fee ($116), this is also paid to the Land Registry OfficeRO.

Legal Fees

It is important to be well represented



A few other small fees also exist. To obtain a complete breakdown of the closing fees for a property in Mexico, contact us today.

Congratulations!

 

Once you have paid these fees, you will be an official Mexico property owner!

 

If you want to learn more about the process of buying property in Mexico, we recommend that you take a closer look at our blog "How to buy a Condo in Mexico", which has more details on the subject. And of course, remember that if you’re not q uite so far along on your property search journey, you can always reach out to us at Zisla. 

 

Our specialty is connecting foreign buyers to the Mexican real estate market, and demystifying the process so that you have the information you need to make the right choices. Let us help you find the perfect property and navigate the rules with confidence! 

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