What Type of Loans are Available?

Q: What Type of Loans are Available? Stephanie C., Chicago, IL

A:
US Dollar loans from private sources and Mexican Peso Loans from Mexican banks. For general purposes, the loans available fall into one of the five following categories: Purchase, Refinance, Home Construction, Peso Loans and Commercial.

Loans are available for both Vacation Homes and Primary Residences. Vacation Home Financing is available through US and Mexican lenders.

Purchase Loans for second homes and condos comprise the greatest volume of lending from US lenders. You see a home or condo, and decide to buy. The market in Puerto Vallarta and The Banderas Bay Area is just about as exciting as any in the world with stellar returns and a dream home for every taste and budget. In Puerto Vallarta we enjoy the services of well organized and extremely knowledgeable real estate professionals. Our firm has closed loans all over Mexico, and believe me, we appreciate the professionalism of the local real estate community!

A sub-category of the Purchase Loan is the “Pre-Construction Loan.”? It is possible to obtain a “Pre-Construction Loan;”? however, the lenders will not close and fund such a loan until the project is finished and ALL of the property documentation requirements are met. This means that the developer must be amenable to the financing terms. Not all are, but more and more are becoming open to these arrangements so approach your mortgage broker to inquire about a specific project. It makes absolute sense that a lender will not fund until the property legally exists at a value in keeping with the sales price. In Mexico, a property does not legally exist until there is title and tax documentation registered by and with the government. This is a standard that should be kept in mind when venturing into a pre-construction contract. A closing is not a closing until those documents are registered and produced with and by the Mexican government under the auspices of a Notario. The majority of “closings”? on pre-construction condos are actually use and occupancy agreements—not legally binding closings that provide true ownership. Always consult legal council before signing a pre-construction contract of sale and be fully aware of the risks involved.

Refinancing is an area that we feel will explode in the coming years. As with a purchase loan, all of the property documentation must be in place. When MEXLend launched in 2005 we had very few Banks offering cash-out re-financing loans. Now most do, with even more lending options on the horizon for 2007. Over the years the vast majority of property purchased in Mexico has been on an all-cash basis. Refinancing allows you to take a chunk of that pent-up equity and use it to make more money. That is the bottom line: use your money wisely and make it work for you without having it tied up in one asset. Leveraging is the key to increasing wealth and Mortgage debt is good debt! Spread your risk and increase your wealth. We cannot say enough about this product. As Martha Stewart would say, “It’s a good thing”?.

Home Construction loans, sometimes called “Construction to Permanent Loans,”? are becoming more popular as the areas North and South of Vallarta are developed. Documentation of financials, property and construction is extensive for these loans. Basically, banks require all of the information that you should require of yourself before taking on a project of this magnitude in Mexico. Often lenders ask for a larger commitment of personal equity in the project.

You will need to provide architectural plans, engineering reports, permits and a cost breakdown of both interior and exterior space per square meter as well as a list of materials to be used. For example, there is a huge difference if you are planning to build with marble versus ceramic tiles for flooring. It will affect up-front cost of construction as well as the value of the property when finished. The lender needs to know.

Don’t let these home construction requirements be daunting. Talk to your mortgage broker at any stage of the project…even before purchase of the land. Your broker in partnership with the lender will help you. You can be pre-approved or even obtain a loan commitment with only your financials and your plans. If the lender is interested in your project, they will provide you with conditions to be met before funding.

Peso Loans are available for Mexican Nationals and those who for the most part have officially expatriated. While the interest rates are a bit higher than US lending counterparts, they are becoming more and more competitive. Most require lower down payments and the monthly payments become much more attractive when you convert from dollars to pesos. The exchange rate almost always favors your dollars, making the payments even more affordable.

Remember, that you are dealing with a Mexican lender and these applications will not be in English, although your broker may provide you with a translation. The requirements may differ from US Lenders. Always keep in mind that these loans are primarily geared to the Mexican National, so you have to put your head into that mind set. These loans have become extremely popular among those who have more-or-less moved to Mexico on a permanent basis or for US citizens who are seeking smaller loan amounts.

Commercial lending is a field unto itself. Few brokers offer these loans, as they are very complicated to underwrite. In addition, they require a substantial investment on the part of the developer in equity, but also in cost breakdowns and marketing strategies. Currently, commercial loans are offered for five million to twelve million dollar projects. There are exceptions to these loan limits, but these loans are not primarily for the small mom and pop developer building a three-unit condominium or buying a commercial local. MEXLend is currently in talks with several commercial banks in an effort to launch a product geared to the small-scale developer. Expect this late 2007 or early 2008.

The Loan Programs outlined above allow those interested in purchasing property in Mexico greater flexibility and options on how to use their money wisely.

When you purchase with a mortgage, you are not only freeing up your liquid assets, you are taking on a partner who shares your risk and who has a vested interest in making sure that the title is clean and the purchase is safe.

Remember too, in many cases mortgage interest is tax deductible – even on your Mexican Dream Home!