From ShelterOffshore.com comes an article looking at the top four places to buy property in Mexico (and MEXLend Mortgages can handle loans in all of them!).
Of course, our favorite is Puerto Vallarta.
The World Bank just approved $1.5 billion for new educational and health programs according to Bloomberg.
Education is the only way to progress.
Great news!
There’s a lengthy article in BusinessWeek about just how much money foreign investors are pumping into building factories in Mexico. It’s nice to see that companies are looking beyond the recent media-hyped violence reports and realizing what a good value it is to build and manufactuer in Mexico. It also shows considerable faith that Mexico is not a “failed state” as some uninformed policitians have been saying.
Having come from the United States where everyone I know is steeped in credit card debt, it was hard not to see the same thing happening in Mexico when everywhere from banks to supermarkets are pushing credit cards to people who have never had to responsibly manage credit before. Rates on credit card purchases in Mexico are unregulated and with fees and interest up to 100%, it’s hard not to have a dire outlook of the whole consumer credit push. However, things may change in a positive way.
There’s a bill in the senate proposing to cap credit interest rates at 33% which is a lot lower than the average card rate. With little education focused on how to use credit responsibly, these proposed caps could save a lot of Mexican families from getting in over their heads with an unpayable balance resulting from exorbitant fees.
Read the AP story here.
From the incomparable MexFiles Blog, written by author and historian Richard Grabman, I found this positive tidbit of news on why Mexico isn’t facing the same mortgage crisis as the United States.
What I liked about this article was the emphasis on how a home is basic human right and that Mexicans look at their homes not as investments, but as…well, a home.
Mexico Interest Rates Remain the Same While US Mortgage Rates Fall
By Terence Reilly, MEXLend Mortgages (originally published in the Vallarta Tribune, March 2009)
As interest rates in the US decline, many people are curious as to why the rates for mortgages in Mexico remain the unchanged. The short answer is that the United States and Mexico are two different countries with two sets of circumstances. Many people think of Mexico as a southern extension of the U.S., but it is not. If Swiss nationals can buy property at a 1.5% interest rate in Switzerland, would they be able to match that rate on a purchase in the US? The answer is…of course not!
That’s the simple answer but there are several reasons why US cross border lenders set their rates higher. First, these loans are for second homes only. If you were to apply for a second home mortgage right now in the US, you would pay a premium. If the 30-year fixed rate were 5.5% on a primary residence, the bank would add one or two points (depending on the bank) to compensate for the added risk of a second home, bringing your rate in the US for a vacation home up to 6.5%-7.5%
Why are second home mortgages more expensive?
Lenders know that if a borrower gets into financial trouble, he or she will protect their primary residence and dump the vacation home. It’s that simple.
Many borrowers in the U.S. cheat on their loan applications, stating that their second home is a primary residence. If found out, either through mailing records or tax records, the bank will notify you that you are in non-compliance with the terms of the loan and will force you into a higher interest rate. But because cross border US dollar financing in Mexico is ONLY for second homes, there is no way to cheat on the loan application by calling it your primary residence,.
Further, if your lender is a U.S. entity, they are conducting business in a foreign country which adds additional risk and cost. While purchasing in Mexico is a safe investment, if a borrower were to default, the costs for the U.S. lender to hire Mexican legal council to coordinate a foreclosure and to pursue collection are much higher and time consuming.
In short, the greater the risk is perceived by a lender, the higher the interest rate.
When considering a mortgage in Mexico, note that the average Mexican lender is charging 10% to 14% interest on their mortgages. With cross border lending, US citizens and Canadians are getting a huge break on the current interest rate of the country in which the property is located.
Also, there is no reason or incentive for lenders to match the artificially low rates that are being offered in the U.S. The current low interest rates in the U.S. are an effort to prop up an ailing economy and to aid the housing industry. These are not normal interest rates and have not been since the year 2000.
Some people may consider the option of obtaining a home equity line of credit or cash out refinancing on their primary residence in Canada or the US to take advantage of lower interest rates. However, with real estate values plummeting, is it worth the risk of getting into an upside-down position on your primary residence to save a few interest points? In the majority of cases, it is not. It is far more advantageous and conservative to obtain a loan on your Mexican property and use it as collateral while leaving the equity in your primary residence intact.
The great news is that US dollar loans are available and are readily accepted in Mexico. They allow the borrower to leverage their investment and keep more cash on hand. In the current economic climate having extra cash on hand and a lending partner for your Mexico real estate investment is a winning situation.
MEXLend, Inc. is a Mexican mortgage brokerage that currently represents 20 different lenders offering more than 300 different loan options in Dollars and Pesos for buyers looking to purchase vacation or investment property throughout Mexico. MEXLend can be reached at 322-132-7991 (in Vallarta), 917-779-9061 (while in the US or Canada) or go online at www.mexlend.com.
Reader Gloria left this question in the MEXLend comment section:
“”We have a new condo in Nuevo Vallarta that we bought pre-construction in 2005. We now have possession, but because of cost overruns and devaluation of our home in the states we have run out of money to finish and furnish our new home. We have also run up credit card debt in the states all related to our condo in Mexico.
Is it possible to get a loan on our Mexico condo to finish it and pay off out credit cards? What is the interest and payments on a 30 year fixed of 300,000?”
David Schwendeman, CEO of MEXLend Mortgages replies:
“Many of our clients right now are doing exactly as you suggest. You can absolutely get a loan against your Mexican Property to pay off other debt and/or furnish or improve the property itself. There are several factors, though, which will determine how Mexlend would proceed in arranging financing for your particular situation:
1. You mention having “Possession” of the Property without having formally transferred title. This is farily common in Mexico but without having transferred title – your loan will likely be treated as a “purchase loan”. If you had already transferred title we would be treating it as a “cash out” or “re-finance” loan. Basically, once you are approved individually for a loan – we would then document in writing that you have already paid cash to your developer and that the “down payment” is in his hands. Banks typically require 20% to 30% down. That said, anything over that minimum down payment requirement can be re-imbursed to you at closing. So if your condo cost $400,000 and you’ve already paid $400,000 to the developer – you can get back up to $320,000 at closing. $100K is the minimum loan amount allowed and anything in between would be ok too.
2. In the event you have taken title to the property and we arrange for a “cash out” loan the amount you can take out could be slightly less. Banks have gotten a bit more rigid about cash out refinancing and they often only allow 50% to 70% of the value on the property.
Lastly, interest rates right now start at 7.5% and cap out at about 9.5%. Therefore, depending upon which loan program you ultimately qualify for – your monthly payment on $300K US would be somewhere between $2,250 US and $2,850 US. The rate and terms you are offered are contingent on your credit score and income. If credit is good and income is high in relation to the loan – you’ll likely see a lower rate. If credit scores are borderline and income is low in relation to overall debt – you’ll see a higher interest rate.”
So Gloria, I hope that answers your questions and feel free to contact MEXLend for a no-obligation consultation to see if taking out a loan is right for you!
Q: “Are mortgages available for foreigners who not only live, but work in Mexico?” Veerle Van Looken, Belgium.
A: Yes. Many people from other countries are eligible for mortgages. There are loan programs for purchase AND cash out refinancing available to you through both U.S. and Mexican lenders. Which lender you end up getting your loan through, depends upon many factors. For the purposes of this article we will concentrate on Peso loans obtained through a Mexican lender, as this is most often the avenue for those who have expatriated.
Unfortunately, many expats become lax in their record keeping and reporting practices once they settle into Mexico. It is easy to do when you are living abroad, but remember, lenders are still looking to make sure that you are credit worthy. They want concrete and verifiable evidence that you have the means to repay the loan. If you have become lax, a broker can help you get on track to present you to a lender in the best light. Very few brokers have experience with Peso loans, so be sure to use due diligence in your choice. The following are a few tips you should keep in mind before you approach a broker or lender.
Make sure all of your documents are in order. Are your passport and FM3 up to date? The bank needs to have accurate and current identification and know that you are legally working in Mexico. Do you have a current contract of employment? Are your taxes up to date? If you are earning in Mexico, you must file taxes in Mexico. Have you saved your pay stubs? Many companies use local accountants and their payroll services. It is best to scrutinize every pay stub issued by a payroll service, in particular to confirm that the proper RFC number has been attributed. An RFC number in Mexico is your tax identification and the equivalent of a Social Security number in the U.S. and a Social Insurance number in Canada.
We have had clients who were issued pay stubs under their name, but with several different tax identification numbers. It is a common mistake and can present delays and misunderstandings. Clients had to approach their employers and payroll services to have the situation rectified. In one case, the bank sent their fraud department to the employer for verification.
Another area to address is your banking. It is best to have your earnings deposited in a local bank account as you will need to provide a banking history in Mexico. Many foreigners have their earnings deposited directly into an investment firm such as Lloyds. While these are wonderful options to increase your wealth, they are not recognized by lenders as a true bank account. They are investment accounts. So, it is best to have your earnings deposited directly into a bank and then afterwards, transferred into the investment account. This will satisfy both the need of the bank to verify income and your need to earn maximum interest on your money.
These are just a few of the requirements of a Peso loan, but a good beginning. Always remember that the lender WANTS to approve your loan. We simply need to prove to them that you are worthy and responsible.
As the Mexican economy grows, more and more foreigners are looking to make a life here. Time share sales people, shop owners, restaurateurs, developers and people in almost every profession imaginable are finding a terrific life here in Puerto Vallarta. Whether you are looking to buy a new home, or would like to cash-out on equity that you have built in your current home, financing is a great option that has become available to you in your adopted country.
Contact us at MEXLend to see if you qualify for a peso loan!
Here’s a very interesting article written by a local real estate professional that details the history of Puerto Vallarta and also gives some great history and information about silver mining. Everyone knows that Mexico is the place to buy silver!
It covers why Puerto Vallarta was founded where it was on the Rio Cuale as opposed to the more obvious choice of Rio Ameca and also gives a nice overview of just how diverse and rich the Puerto Vallarta area is in natural resources.
Here’s an interesting story from the San Jose Mercury News about rental houses for vacations. It outlines the advantages that renting offers travelers but will also give home owners some ideas on how to market their vacation rentals and to who.
By renting out your Mexico real estate, depending on the location and amenities, your home can pay for itself. Vacation home owners can make a tremendous amount of money during holidays, often enough to make up for the place standing vacant for more of the year.