Mexico Real Estate Guide: Part 4 – Terms and Details

Category: Blog

Part 4 of your Mexico Real Estate Guide discusses some of the finer details of buying property in Mexico. While this guide provides an excellent overview to the process, buyers need to be aware that laws and processes change. It is always recommended that you seek out a qualified and experienced Mexican real estate attorney to help you through the more complicated points of buying property in Mexico. That being said, buyers should not be daunted by the task. For the most part, the real estate processes in Mexico and the United States are quite similar and buying property in Mexico is a relatively straightforward process.

Mexico Buying Process and Legal Details

For the most part, buying property in Mexico is not all that different from buying property at home. As more and more international buyers have become interested in Mexican real estate, the buying process has become significantly more simplified. However, the process is not exactly the same and as such you should be prepared with a qualified real estate agent and attorney.

In Mexico, there are typically four parties involved in real estate transactions:

1. The real estate company
2. The buyer’s lawyer
3. A bank
4. A public notary

Foreign buyers have the right to obtain direct ownership of property in the interior of Mexico but there are some restrictions along border and coastal regions. Nevertheless, your real estate attorney and agent should help you navigate purchases in any part of Mexico.

Otherwise, much of the paperwork and procedures for Mexican real estate purchase mirror the process in the United States. One of the main differences is that buyers must retain professional assistance in order to complete a purchase. Mexican real estate transactions have actually not been regulated in the same way as North America and real estate agents and brokers are not licensed legally in Mexico. As a result, buyers need to be even savvier about the potential properties they are purchasing and the agents with whom they are working.

Buyers need to obtain Mexican representation in order to draw up contracts and review the terms and conditions of the sale. Attorneys will often also conduct a title search to make buyers aware of potential problems and possible alternatives. Some real estate agents may offer free lawyer representation but it is advisable to seek out your own attorney.
Furthermore, buyers need to be aware of the border and coastal restricted zones already mentioned. As a rule, foreigners cannot directly own property within 30 miles of the shoreline or 60 miles of the border. However, there are secure methods that allow you to legally buy in these restricted regions.

• Fideicomiso - This is a real estate trust held for a buyer by a Mexican financial institution. In short, the bank acts as a Trustee while the buyer is designated the beneficiary of the trust. As beneficiary, buyers maintain control over the purchased land, including the control to lease, build, improve, mortgage, sell, inherit, and will the land. When the Mexican constitution was originally drafted, it included these restricted zones to prevent land loss. Instead of amending the constitution, the Mexican government added the fideicomiso to encourage foreign investment. Buyers need not worry that their land will be confiscated but they must take extra precautions when purchasing properties in these regions.
• Form a Mexican Corporation - Buyers interested in properties in the restricted zone may also form a Mexican corporation if the land will be used commercially. This process is considerably more difficult and expensive than fideicomiso.

Finally, potential buyers should be wary of Ejido land. Ejido land is communal agricultural land in Mexico that is without title. This land was previously owned by the government and farmers were permitted to use and work the land. While the rights to use this land can be purchased, it can never be sold, leased, or used for collateral. As such, it is recommended that you do not buy Ejido land.

Mortgages in Mexico

Many potential buyers are concerned about mortgaging a home or investment property in Mexico because they are unsure of the mortgage process. Rest assured, mortgaging a property in Mexico is quite similar to the process in the United States and there are a number of affordable and attractive options available to buyers.
In general, Mexico offers a variety of loan programs through various international and US-based lending institutions. These programs are usually offered through a mortgage broker, much like you would expect in the United States and Canada. Indeed, loan programs for Mexico mortgages are subject to change as are there rates so depending on the type of mortgage you have interest rates, loan payments, loan duration, and term can vary over the course of your mortgage.
Here are some basic tips about Mexican mortgages:

• U.S. and Canadian citizens and legal residents are eligible for Mexican mortgages.
• Most mortgages in Mexico require a minimum 20% down payment but for lower interest rates we recommend a 30 to 40% down payment.
• 3, 5, 7, and 10 year interim adjustable-rate mortgages are available and 15, 20, 25, and 30 year fixed-rate mortgages are available
• Mexican mortgages usually carry 10, 15, 20, 25, and 30 year terms/amortization
• A minimum credit score of 650 is required to qualify
• Interest rates vary according to economic conditions but they range between 6.75% and 9.5% depending on the down payment and loan amount
• Mortgages are available for primary residences, vacation and investment properties

The Underwriting and Closing Process

Underwriting in Mexico is very similar to the process in the U.S. While the Mexican process maintains more rigid guidelines, these rules are actually becoming more commonplace in the U.S. as well. These rigid guidelines help to stabilize the housing market and hopefully prevent the kind of market turmoil seen in the U.S. since 2008.
Many experienced Mexican buyers often describe the closing process as nightmarish. These experiences are often related to difficult closings historically, but as purchasing in Mexico has grown in popularity, the closing process is smoothing out. Indeed, the Mexican government has specific closing guidelines that can make the process somewhat more tedious but whether you are playing with cash or through a mortgage the process in Mexico is consistent. Mortgaging your property makes the closing process more complicated, as the typical behavior in Mexico is to pay for properties with cash or check. Still, closing in Mexico really only includes one added step. When you purchase property through mortgage financing, the lender must also approve and sign all documents and you should allow an extra month to close in Mexico.

Mexican Property Taxes

In Mexico, property taxes are considerably lower than in the U.S. and Canada. Known as predial, property tax in Mexico is 0.08% of the assessed value of the property and is paid every 30 days. It seems that the government has never really valued property tax as a source of revenue in Mexico so they have remained low historically. There is no evidence to suggest this would change in the future.