We often get questions from our readers, primarily those from the U.S. or Canada, asking us about financing options when buying property in Mexico.
For the most part, Mexico’s real estate market is a cash market. You see something you like, you make an offer, and then you pay the entire balance due. This is especially true when buying a home from a private party.
For those of you who don’t have an extra $150,000 USD or so just lying around, there are other options. I’ll go through some of the most popular ones.
Home Mortgage Through a Mexican Bank
Let’s start with the way that most folks typically finance a property back home — a mortgage through a bank.
Since it’s highly unlikely that your bank back home will allow you to obtain a mortgage on a foreign property, that leaves applying at a bank in Mexico. Unfortunately, there are two problems with that option:
1) Mexico has it’s own credit bureau (Buró de Crédito) and unless you’ve lived in Mexico for a decent length of time, you have zero credit; and
2) the interest rates are terrible!
The Mexican government has a free site from CONDUSEF that allows you to compare the mortgage rates offered by multiple financial institutions.
All you have to do is enter the value of the property (in pesos), the amount of the down payment (also in pesos) and the duration of the loan. The site will provide you with the results instantly.
Here is the URL: https://phpapps.condusef.gob.mx/condusefhipotecario/datos.php
The site is entirely in Spanish, however, most non-Spanish speakers should be able to operate it after looking up a few words online.
In the graphic below, I used the CONDUSEF site to compare bank rates for a 15 year mortgage on a property valued at $3,000,000 MXN with a $500,000 MXN down payment.
“Pago Total” is the total amount you will have paid for your $3,000,000 property at the end of the 15-year term.
“Tasa de Interés” is the initial interest rate on the loan. As you can see, the rates are quite high.
“CAT (Costo Anual Total)” is a a measure of the total financing cost you can expect to pay. This number includes all of the interest, administrative fees and related costs. It allows consumers to better compare lending rates.
Personal Loan Through Your Home Bank
Even though your bank most likely won’t give you a mortgage on a foreign property, that doesn’t mean that you can’t get a personal loan to cover the costs.
Other than just paying cash, this is probably the second most popular financing for foreigners buying property in Mexico.
Cross-Border Finance Companies
There are companies that specialize in offering mortgages to Americans and Canadians who want to purchase property in Mexico. You can find several by doing a Google search for “cross border mortgages Mexico”.
This is a popular option for many future expats because these companies offer terms that closely mirror traditional mortgages in the U.S. and Canada.
There are a few things to keep in mind when using one of these services:
- There is normally a minimum loan amount somewhere in the neighborhood of $100,000 – $150,000 USD.
- The loans may be exclusively for citizens or resident card holders of the U.S. and/or Canada. Be sure to read the requirements carefully.
- The interest rates are typically higher than those offered in back home.
- There is often a significant prepayment penalty written into the contract.
- If you are buying the restricted zone, some lenders will not give you a loan if you choose to structure it under a Mexican Corporation as opposed to a bank trust known as a fideicomiso.
My advice for anyone thinking of going this route is to shop around and compare the rates and conditions of multiple lenders. This may save you a lot of money and headaches in the long run.
Real estate developers, especially those catering to foreign clients, generally offer a few financing options to potential clients.
Most of the financing options will require 20% – 50% down, with the balance to be paid within 3-5 years. Interest rates will vary, so pay close attention to those if you select this option. Most rates fall somewhere between 7% – 10%.
If you’re on a tight budget and you don’t need to move into a place in Mexico right away, you might want to consider buying something from a developer preconstruction. You can save about 20% off the price of a finished unit and it’s generally easier to get developer financing.
If you do choose to buy a unit preconstruction, you’ll still need to have capital to put down to make it work.
Here’s a preconstruction payment plan taken from an unnamed development in the Riviera Maya:
* 30% down payment at the time of the contract
* 20% due at the time of delivery
* Financing starts after delivery
* 50% of the value financed over 36 months at 8% interest
Let’s Wrap This Up
Buying property in Mexico requires quite a bit of capital. Since our goal was to live debt free in paradise, we decided to liquidate all of our assets in the U.S. (e.g. house, cars etc.) and use the money to buy a condo outright in Mexico.
It’s so much easier to live large on a small budget when you eliminate the big reoccurring expenses, such as mortgages and car payments.