Read all about the financing options available for your dream investment in Puerto Vallarta and Banderas Bay as we answer your questions like: Can foreigners get a Mexican mortgage? What is the Mexican mortgage market like? What are the conditions for borrowing?
The availability of mortgage financing in Mexico today is substantial - for Mexican Nationals, Permanent Residents, and Non-Residents. With less than 15% of the existing housing stock currently financed with long-term mortgage loans, the institutional and governmental financing sources are almost unlimited, meaning the potential market for new mortgage financing is set to expand substantially.
Mortgage financing and loans in Mexico are typically granted in Mexican pesos with the potential for loan-to-value ratios of up to 90%, with fixed-rate interest plans. Current interest rates vary from between 7.9% and 10% per annum with some banks offering lower rates depending on credit ratings and eligibility. Interest rates can also be fixed for up to 20 or 25-year amortizations. The qualification requirements are very similar to the underwriting standards one would expect anywhere: strong credit score, consistent and verifiable bank deposits, tax returns, and professional appraisal.
Mortgage financing availability for Non-Nationals purchasing a property in Mexico is not quite as accessible as it is for Mexican Nationals. Over the years there has been a history of lending institutions that have come and gone, never to be heard of again, most of which were US companies, although there were some Mexican firms. Among the difficulties encountered by these lending institutions were the lack of clear and reliable credit reporting services (now not a problem in Mexico), verifiable appraisals, and, in the event of default, the very lengthy foreclosure process involved, which was usually the last straw for a lot of these lenders.
Today there are still a few mortgage lending options for Non-Nationals, including Americans, Canadians, and Europeans:
Begin the application process with one of the Mexican banking institutions that are currently offering mortgage financing facilities to non-nationals. This is typically a 2 - 3-month exercise and requires that the non-national be able to exhibit the following documentation:
Providing that all of these documents are in good order, the borrower should be able to qualify for a mortgage of up to 90% of the value of the purchase price with a current fixed rate of about 7.9% per annum for a 25-year term.
Option 2 has similar requirements as option two, via a private lender, albeit with a much higher interest rate of approximately 8.5% to 10% per annum, with up to a 25-year amortization period and a loan-to-value ratio closer to 60%.
Today, only about 5% of the real estate transactions that take place in and around the Puerto Vallarta area have any kind of direct mortgage financing involved, as the majority of buyers find it much more efficient and much less expensive to arrange financing in their home country based on the assets they already have there.
Providing that all of these documents are in good order, the borrower should be able to qualify for a mortgage of up to 90% of the value of the purchase price with a fixed rate of about 10.5% per annum for a 20-year term. This process can sometimes be time-consuming, tiring, repetitive, and inconsistent. However, it is possible to achieve.
An often overlooked financing option is for a Buyer to attempt to negotiate with the Seller to take-back a portion of the sales price in the form a loan back to the Buyer. The potential difficulty with these types of loans is that while they may be able to be negotiated on a 20 to 25 year amortization period they will usually have periodic balloon payments and/or a final term payment after the 5th year or so. And, most Sellers are not going to be too willing to agree to take back much more than 50% of the selling price. As an incentive for the seller to accept the negotiated terms, the buyer will usually have to come very close to the seller’s asking price.
….. here is the detail:
There are essentially three methods to secure vendor take-back financing in Mexico - Mortgage (hipoteca) which is a traditional lien charged against title, Reserve of Domain (reserva de dominio) which is a restriction on transfer of title, and Trust Deed Guarantee (fideicomiso de guarantia) which is an extra-judicial loan guarantee. While all three methods provide strong lender security, the first two methods require judicial intervention and final court order in order to realize the security and the third method does not. Typically it will take at least 4 years to obtain a final judicial order and about another year at least to exercise the order whereas the extra-judicial Trust Deed Guarantee (TDG) format can be exercised in about 6 months.
In the case of a TDG, a trust is created between the seller, the buyer, and a Mexican National bank. The Seller/Lender takes the place of the primary beneficiary, the Buyer/Borrower takes the place of the Secondary Beneficiary and the Bank takes the place of the Trustee. The TDG document is 'formalized' by the Notary of record and registered in the Public Property Registry.
The TGD document recites all the antecedent particulars of the property, the Primary Beneficiary, the Secondary Beneficiary, the Substitute Beneficiaries*, and the Trustee. It also recites all the terms and conditions of the debt. Once the Secondary Beneficiary complies with all terms of the TDG and documents such compliance to the bank Trustee, the Secondary Beneficiary instructs the Trustee to appear before the Notary Public to formalize the cancellation of the Guarantee and to record such formalization before the Public Registry of Property, thus, and the Primary Beneficiary is thus expunged and the Secondary Beneficiary then takes his place as Primary Beneficiary.
In the event that the Secondary Beneficiary does not comply with the terms and conditions of the TDG the Primary Beneficiary notifies of the non-compliance (in the case of non-payment, 30-day default), the Trustee notified the Secondary Beneficiary, orders a market value appraisal, and orders the property to be auctioned at 90% of the appraised value, should there be no bidders the property is then auctioned 30 days later at a 10% discount to the previous auction amount and if still no bidders it is auctioned again at a further 10% discount. Once sold, the proceeds first are applied to any Trustee fees, then to any property tax and HOA fees, then to the Seller/Lender and finally the residual is paid to the Secondary Beneficiary/Borrower and the property is subsequently conveyed to the new owner.
*Mexican Trusts work like last wills and testaments, prevailing over a later date will or testament; so people may appoint substitute beneficiaries of the property trust in different percentages.