HOME FINANCING OPTIONS IN LOS CABOS
Purchasing real estate in Mexico presents an exciting opportunity, and after meticulously exploring numerous properties, you have finally identified your ideal home. It is worth noting that the real estate market in Los Cabos predominantly operates on a cash basis, which can be limiting for many prospective buyers, potentially curbing their purchasing power. Similarly, sellers may encounter challenges in finding buyers with substantial cash reserves.
So, what alternatives are available to facilitate property transactions in Los Cabos besides an all-cash approach?
1. Seller Financing
Seller financing is an option extended by the property’s current owner to the buyer. This financing arrangement functions akin to a short-term bridge loan.
Securing Seller Financing in Mexico: Two Common Methods
If you are contemplating the utilization of seller financing for the sale or purchase of a property in Mexico, it’s essential to understand the two prevalent methods of structuring such an agreement to ensure protection for both parties while adhering to Mexican legal requirements.
1. Warranty Trust / Guaranty Trust / Fideicomiso de Garantía
In this arrangement, a Trust, known as the Warranty Trust or Fideicomiso de Garantía, is established. The seller is initially appointed as the primary beneficiary, and the buyer is designated as the secondary beneficiary. A Mexican bank, typically BANCO MONEX, serves as the trustee. This structure involves the transfer of title to the buyer, thereby triggering all associated closing costs and taxes.
Once the loan is fully repaid, the seller is required to appear before a Mexican notary public to execute a public deed. This deed signifies the removal of the seller as the primary beneficiary, with the buyer recognized as the “sole beneficiary.” In the event of buyer default, the seller can instruct the trustee to initiate a non-judicial foreclosure process. Two options are available:
a. Conduct a public auction to sell the property and disburse the proceeds, prioritizing the loan balance, interest, etc., with any remaining funds going to the seller.
b. Remove the buyer as the secondary beneficiary, reinstate the seller as the “sole beneficiary,” and repossess the property while retaining all payments as liquidated damages. This option is favorable due to its non-judicial nature, with courts involved only if the buyer refuses to vacate the property voluntarily. Additionally, the seller has the choice to regain property ownership/title and possession, subject to the payment of an acquisition tax (2%).
Both parties appoint substitute beneficiaries in case of demise. It’s important to note that while this method is considered the safest for both parties, the closing costs for the buyer are typically higher compared to the alternative option.
2. Warranty Pledge / Garantía Prendaria
In this scenario, the parties execute a public deed that formalizes two key components:
a. Transfer of title to the buyer.
b. A mortgage/pledge agreement to secure the financing. This agreement is recorded as a lien against the property in favor of the seller.
Upon full repayment of the loan, the seller must engage a notary public in Mexico to execute a public deed, thereby formalizing the cancellation of the mortgage/pledge and the removal of the lien. All relevant taxes and closing costs are incurred at the time of closing.
In the unfortunate event of buyer default, the seller is compelled to initiate a judicial foreclosure process and eviction proceedings against the buyer. It’s worth noting that the judicial process can be time-consuming, lasting for one, two, or even three years. Furthermore, this option does not provide for substitute beneficiaries in the event of a party’s passing.
The advantage of this method is that the closing costs for the buyer are generally lower, making it a more cost-effective choice for them.
In summary, when considering seller financing in Mexico, it is crucial to select the option that aligns with both parties’ preferences and requirements, balancing safety with cost-effectiveness.
2. Developer Financing
Commonly available for pre-construction properties, developer financing often offers attractive terms that resemble a conventional mortgage.
3. MOXI Mortgage
MOXI Mortgage provides residential financing and refinancing options for U.S. citizens in Mexico. Their offerings encompass fixed-rate 15-30 year mortgages, full amortization, and the lowest interest rates available from any institutional lender in Mexico. For comprehensive information, please visit the MOXI Mortgage Website.
4. Intercam “Dream Loan” Mortgage
Intercam, a prominent Mexican national bank, extends residential financing to U.S. and Canadian citizens. Their services include fixed-rate mortgages with terms of up to 20 years, full amortization, and competitive interest rates. Explore further details on the Intercam Dream Loan Website.
5. Veltra Capital
Veltra Capital caters to U.S. and Canadian citizens seeking residential financing and refinancing options in Mexico. They offer fixed-rate 30-year mortgages, full amortization, and competitive interest rates. For a deeper understanding of their services, please visit the Veltra Capital Website.
6. Other Mexican Banks
It is important to note that, aside from Intercam, most Mexican banks exclusively offer mortgages to Mexican nationals and permanent residents. If accessible to foreigners, these mortgages often come with higher interest rates.
In Conclusion
The most cost-effective financing options for Americans, Canadians, and many other foreigners purchasing property in Mexico frequently originate from their home countries. Refinancing your existing property or securing a Home Equity Line of Credit (HELOC) can be the most economical means of obtaining funds to purchase property in Mexico.
In your particular case, considering financing options carefully can significantly enhance your ability to acquire the perfect property in Los Cabos.