When looking for financing for a property out of the United States, the process can become complicated. Popular US destinations like Mexico can be more accommodating to foreigners. While interest rates and options based on citizenship are wide and varied, nailing down the points on a mortgage or getting help from a professional like a mortgage broker is key to avoiding mistakes costing buyers time and money. To navigate the terrain of foreign loan services, here’s what you need to know as a buyer.
The mortgage process
The mortgage process depends on what type of mortgage you’re applying for and in which country you’re applying. Regardless of country, those trying to qualify for a loan will need documents like bank references and statements providing proof of income, official identification, proof of address, a birth certificate, and a marriage certificate if applicable. Buyers can also expect a thorough credit report check for mortgage preapproval.
US buyers will have to look at options beyond conventional loans provided by US lenders, as they don’t finance foreign property purchases. Checking the rules for foreign lenders in terms of citizenship, mortgage requirements like private mortgage insurance, and the timeline for payments is also important. When purchasing a home, buyers should also prepare for closing costs, including transfer taxes, notario fees, and other charges. These costs can fluctuate based on the value of the property.
Mexico mortgages
A buyer who’s a permanent citizen of Mexico or who is interested in making Mexico a permanent living destination can apply for a mortgage directly through a Mexican bank. Those who don’t have the proper paperwork will need to have a temporary or permanent residence permit to qualify for a loan in Mexico. Mexican banks can offer loan types covering a range of the property’s purchase price, although it differs based on personal factors and the bank.
Buyers who go through a Mexican bank should prepare for a longer mortgage preapproval process when searching for homes. Be careful not to enter into an agreement requiring a financial commitment before securing the loan. US buyers should also be aware the Notary Public in Mexico is much more official in checking if the property can be sold. However, a perk of financing with a Mexican mortgage is there aren’t fees for paying off the mortgage early.
Interest rates
Working with a professional is important in understanding the interest rates for different loan types. Annual interest rates for loans in Mexico can be quite a bit higher than compared to the US, especially if buyers are working directly with a bank in Mexico. Working with global mortgage companies like Moxi can give buyers a little more security, as they provide a fixed-rate mortgage with a rate that locks in after the loan closes.
Cross-border mortgages
A popular choice for buyers interested in buying a property in Mexico is cross-border mortgages. Cross-border mortgages are usually offered through Mexican banks that are part of a global corporation, including the US. Authorization for the loan is given by the Mexican bank, then offered in US currency through the company native to the buyer. Although buyers can find international financing from global brands in the US, the mortgage loan types are usually limited and come with higher fees.
HELOC
Another way to finance a property in Mexico as a foreigner is by using a HELOC or home equity line of credit. In other words, a buyer can free up funds from a property they own in the US, then use those funds to buy a property in another country using cash. The flexibility of funds from a HELOC can be a benefit for buyers, as they can purchase a home and then make renovations or upgrades with the remaining funds.
Seller and vendor financing
Seller and vendor financing is another option for buyers looking for ways to finance their property in Mexico. This form of financing is arranged between the buyer and the seller, as the name suggests, when buyers take out a loan from the seller. Buyers must wait until the loan is paid off to fully own the property. Buyers who choose this option should have legal protection in case something goes wrong during repayment.
Developer financing
Buyers interested in new construction projects in Mexico may choose developer financing, which is when the property is purchased directly from the developer. Buyers pay for the home as it’s completed, in stages. Spreading the costs can be more manageable for buyers, although they should monitor progress to make sure funds are being property allocated.
Developer financing can come with a balloon payment as well, which is an additional larger payment three or six years later. This can provide even more flexibility for a buyer, as the initial fee is less. However, it can cause stress for buyers who don’t properly prepare for the extra payment. Some services like Moxi provide alternatives out of developer financing if it becomes unmanageable, such as a refinance into a long-term loan.
Follow these tips when searching for mortgages
The truth about a mortgage when buying in Mexico as a foreigner can get a bit complicated, although there are plenty of accessible options for individuals interested in making the country a permanent home or looking for a vacation property. Cross-border mortgages are an accessible way for buyers to finance a property through a Mexican bank while managing complications related to different laws and currencies.
Buyers who are more comfortable keeping processes within the US will find more limited options available or can opt for alternatives like paying all cash with a HELOC. No matter what you choose, working with an agent who’s familiar with both countries is important to finding the best rate, avoiding potential scams, navigating language barriers, and more. When you’re ready to start your home search out of the country, contact one of the experienced agents on the Coldwell Banker Riveras team to guide you through the process.
