If you are still under the impression that only Mexican citizens can buy property by the coasts and in other desirable areas I would recommend reading my prior article here about Fideicomisos.
So, you’ve found a place that you love in Mexico. You want to start a new life there or perhaps buy an investment property but you don’t have the money to buy one outright. Are there any options for you?
Most people, even real estate agents, will tell you that there aren’t any loan options for you but I will go over several ways that you can finance real estate in Mexico as a foreigner.
First off, the 30 year fixed mortgages that are offered in the United States are not available in Mexico. Normal institutional banks will not lend you money for a property outside of the country and the 30 year fixed mortgage rates and down-payments available in the US are not available through Mexican banks. I could go on and on about why that is but to make a long story short the insurance provided by Fannie Mae and Freddie Mac, tax deductions and the US dollar being the de-facto world currency provide for a unique product that you will not find abroad. So, once you realize that you will probably be looking at higher down-payments, higher interest rates and shorter term loans then you may be used to, it’s time to look at some financing options.
I do not know of any Mexican banks that will lend to non-residents (if there are some please let us know about them in the comments), so that leaves us with private lenders. There are private lenders that will give home loans to non-mexicans but they are few and far between and their terms are pretty standard:
- Minimum 40% down
- Rates around 7 -10%
- 10-15 year term with no prepayment penalty
- Upfront and possibly even annual admin fees
To qualify you will usually need to provide things such as your tax returns, bank statements, pay stubs, and credit report. A few options that I know for these types of loans are Cross Border Investments, Global Mortgage, and TOI Expertos Hipotecarios.
Another kind of private lenders are what would be considered hard money lenders.
These kinds of loans carry a higher rate of interest and have even shorter term. They will also normally require collateral that is at or above the value of the loan. The good part about these kind of loans is that you get the money right away and there is usually no credit check. This is not what you would use for a mortgage per-say but a bridge loan for a short time if you wanted to move quickly to buy a property. You can find the details of a company that offers such loans here.
If you have equity in a property that you already own you can borrow against it. HELOC (Home Equity Line of Credit) and Reverse mortgages are readily available and easy to acquire. Reverse mortgages are usually prohibitively expensive but securing a HELOC, even if you don’t have a specific deal in mind, could be a good idea. If you are considering buying a property at all, having a good line of credit ready to go can be a great resource if you do find a deal that you need to move on quickly.
Self directed IRA
Many people overlook their own IRA’s for a source of financing deals. If you have money in an IRA, you do have options other than the conventional US paper assets. What’s better is that you will get to continue to take advantage of the same tax benefits as you have been with your traditional IRA, meaning all of the profit you make from the property will be tax free. This is only for investment properties however, you cannot have any personal benefit of the property and will have to hire a custodian to manage the account for you. This one can get tricky because of the tax benefits and restrictions on what you can do with the money without creating a taxable event.
This is also another option that is good to consider whether you have a specific property in mind or not. Setting up a self directed IRA can greatly increase the number of asset classes you have access to internationally. Two good options for setting up a self-directed IRA are Global wealth Protection and Global Expat Advisors.
Your life insurance policy
If you have equity in a whole life insurance policy you may be able to borrow against it to purchase a property. The benefit of this strategy is that you can continue to accrue interest on your policy while also benefiting from the income and/or use of the property. You are essentially paying yourself the interest that you would be otherwise paying to the bank.
This requires no credit check or application, it’s your money after all, and you can use it however you want. This strategy can get complicated quickly, if you want to look more into it there is a whole body of knowledge built around it called the Infinite Banking Concept.
Seller financing is one of my favorites. If you have a seller that is amenable to this kind of deal you’re in luck. Negotiating directly with the seller can be a great way to create a win, win and cut out the banking fees. Open your mind to what the seller actually wants and find the best way to make them feel comfortable with the offer. Is there something that they would be willing to barter for a smaller downpayment? How about concessions on use of a part of the property for a smaller monthly payment until it is paid off? The possibilities are as endless as your imagination.
Come to agreement and have a lawyer help you write up a contract. It’s that easy.
Private lenders, home equity and life insurance loans, self-directed IRAs, and seller financing are all options at your disposal and you can mix and match to come to an agreement. It’s a good idea to first asses all of your resources and gain intelligence about the seller to try to reach an agreement that you both can live with. There is nothing wrong with using two or three of these sources of credit together to make the deal work.
If you want to have questions about buying property in Mexico you can schedule a strategy call with me here.