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Friday, June 29, 2012

Mexico offers more financing options for non-Mexican buyers ? Part 1

While in most cases, foreigners Mexico Real Estate in cash, or by mortgaging a property or an asset in back home, a growing number of foreign buyers are using financing options found in Mexico itself. This trend has been on the rise, and various financing options are being newly explored. Two of the options receiving the most attention are financing from institutions and seller financing. Both of these options have clear benefits to offer, and with the right advice and information, a non-Mexican buyer can take full advantage of these benefits.

The history of home financing in Mexico

Institutional financing for purchasing Mexico Real Estate is a relatively new phenomenon. Over five years ago, financing for the purchase of Mexico real estate was not administered by banks or private institutions in Mexico. While foreign buyers relied on options from their home country, Mexicans did not have access to credit for the purchase of their own home and such support was usually obtained from family and friends. Thus, a large part of the population in the low and middle-low income brackets still share dwellings. Seller financing has always existed, but it used to be based solely in personal contracts and would involve fairly high risks for both buyers and sellers; for this reason it was not very common. While banks and other institutions have finally started offering mortgages for non-Mexicans, seller financing has also become a much safer and attractive option through a new bank trust process, which we will discuss in more detail below. Today, both financing options present very interesting new possibilities to non-Mexican buyers.

Mortgages for Non-Mexicans

Mortgage loans are still a new financing tool in Mexico. One of the slower outcomes of NAFTA was that banks and other institutions began to offer mortgage loans to real estate buyers. This process first started about 5 years ago. The government has been cautiously slow in releasing regulations. Bank institutions have been easing these funds into the market place little by little as well; and rightfully so, given the examples of obstacles the American markets have confronted during the past several years. Although both buyers and lenders have been warming up to the idea slowly, cases of non-Mexican buyers receiving funding from Mexican national institutions have been on the rise.

Why leverage yourself from a Mexican financial institution?

There are several convincing reasons why buyers are beginning to consider mortgages as an option for their Mexico real estate purchase. First of all, financi ng in Mexico allows buyers to use the same Mexican property that they are purchasing as the collateral for the credit, and thus they avoid tying up an asset back home. This leaves more options open for further investment there. Buyers also prefer to avoid the possibility of a cross border domino effect; they would rather have their money be corralled with the loss in the same country where they have invested, and not create or be affected by any loss back home. This benefit also applies in the case of seller financing.

In addition, buyers can receive a higher loan-to-value ratio when the same property being purchased is used as collateral. If a buyer takes a personal loan against a property already owned in the U.S., most institutions will lend 50% of the value; in contrast, Mexican institutions can lend up to 75% of the selling value when the collateral is the same property.

There are many excellent investment opportunities in the Mexico Real Estate market in 2009. The projected returns on these purchases are very high. While the interest rates and costs of Mexican mortgages are notably higher than in the U.S and Canada, the projected returns are often high enough to off-set these expenses. It is necessary for buyers to evaluate their specific situation and needs, analyzing cash flow, considering maintenance and management fees, as usual, but now also considering the monthly payments and the one-time financing fees. If a buyer is planning on a rental investment, these expenses must be compared to the occupancy rate and rental rates to determine if the expected results produce the desired or necessary return. Early in the search process, it is highly advisable to find a broker who will guide the search and purchasing process, using experience to analyze each situation and to find properties where there is a strong potential of high returns.

It is also worth noting that, while we are discussing �mortgage� as one option, bank s and mortgage companies offer various types of mortgages, including fixed interest rates or variable interest rates. Likewise, different institutions will offer different types of packages. So, within the mortgage option, there are actually several sub-options which leave more choices to suite each buyer�s situation and needs.

Continued in Part 2�

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