post-title Cross-Border Mexico Mortgage Financing Popularity

Cross-Border Mexico Mortgage Financing Popularity

Cross-Border Mexico Mortgage Financing Continues to Gain Popularity

Cabo San Lucas, San Jose del Cabo, Los Cabos, Baja California Sur, Mexico.

12 March 2009 – When you first arrive in Los Cabos, Mexico, the southernmost tip of the Baja Peninsula, it is hard to imagine that this once quaint fishing village was unknown to most foreigners just a few decades ago.  Today, it is home to approximately one million visitors per year, a 320 boat world-class marina, three of Conde Nast Traveler’s Top 10 Best Hotels in Latin America, over 9,000 hotel rooms frequented by many A-list celebrities, a trendy-high-octane nightlife, and several of the best golf courses and spas in the world.  In fact, Los Cabos continues to demonstrate a success story that is so impressive, many developers, city planners and government officials throughout Mexico and other vacation destinations around the globe often state they are looking to develop the next “Los Cabos”.

The success of Los Cabos as a tourist destination has translated into a rapidly appreciating real estate market as it continues to become one of the most sought after cities for foreigners purchasing second and retirement homes. However, due to an unavailability of traditional mortgage financing, cash has always been king when it came to foreigners purchasing real estate in Los Cabos and the rest of Mexico.  That is until recently . . . .

In 2005, the entrance of large financial institutions offering traditional mortgage financing to foreigners purchasing property throughout the resort area of Mexico slowly changed the landscape. While foreign buyers in Los Cabos were one of the very first markets to adopt this new financing product, mortgage financing only accounted for less than 5% of all Mexico real estate sales in 2007. Compared to mortgages being in place on 90% of all U.S. residential properties, it is only a matter of time before cash purchases become a thing of the past.

The evident growth in Mexico mortgages is now clear as the industry has come a long way since inception in 2005, all for the benefit of the borrower; interest rates are more affordable, down payments are lower, choice of loan terms are more abundant and the process has become very efficient. In addition, today’s global economic turmoil has dried up many of the common capital sources once used to buy Mexico real estate, including home equity lines and second mortgages on U.S. residences as well as other private U.S. loans, forcing foreigners to look closer at Mexico mortgage financing programs.

Despite the fact that Mexico mortgages are gaining in popularity, many people are still unaware that they exist or as to the types of loan programs available. The information below will help to better understand today’s Mexico mortgage programs, in terms of their affordability, loan options and process.

Interest Rates. Interest rates have declined to as low as 6.75%. For the most attractive loan amounts, terms and down payment, interest rates typically range from 7.0% to 9.0%.

Loan Amounts. With a minimum loan amount of $100,000 and a maximum loan amount of $5,000,000, (with higher loan amounts considered on a case by case basis), Mexico mortgages cover almost all types of real estate price points.

Loan Programs. All types of traditional loan terms are now available including 3, 5 and 7 year ARMS as well as 10, 15, 20, 25, and 30 year fixed. Loans are available for traditional purchases, refinancing higher interest rate loans, cashing out of already owned properties as well as to complete construction of single family homes.

Nationality. Loan programs are now offered to both American and Canadian citizens and residents, with the same programs offered equally to each.

Down payment. Down payments have decreased significantly over the years and are now as low as 20% for loan amounts up to $1,000,000. Down payments typically go up by approximately 5% for every $500,000 of incremental loan amount but the exact down payment percentage depends on the loan program.

Collateral. Loans are secured by the real estate in Mexico and not by any other real or personal property.

Credit Score. Mexico mortgage programs require a minimum credit score of 680. A higher credit score (as compared to the U.S.) helps to keep the Mexico mortgage healthy and avoid some of the issues currently arising in the U.S.

Tax-Deductible Interest. According to IRS Publication 936, mortgage interest paid on a primary or second home is tax deductible in the U.S. up to an aggregate loan amount of one million dollars. IRS Publication 936 does not include any language regarding whether the home must be located in the U.S. However, it is advised that a U.S. professional tax consultant is contacted to verify this information as everyone’s situation is unique.

Loan Commitment Process. Overall, the loan commitment process is relatively the same among U.S. and cross-border Mexico mortgage financing. The process requires similar documentation from the borrower and on the property. Given the current U.S. housing market turmoil, Mexico mortgages may now even have a quicker loan commitment process than in the U.S in many cases.

Use of a Mortgage Broker. Real estate purchases, whether purchased with cash or mortgage financing, are very different than in the U.S. and Canada, thereby making the mortgage financing process in Mexico more detailed. It is therefore important to understand that a Mexico mortgage broker plays a greater and more critical role than in the U.S. and Canada. The Mexico mortgage broker not only works to obtain a loan commitment but also has significant involvement in the closing side of the transaction enabling a financed purchase to close timely and efficiently. With many Mexico mortgage brokers having come and gone in the marketplace over the years, coupled with the fact that a brokers’ role is critical and requires a significant knowledge base, it is highly recommended to ensure that a broker has a strong reputation of recent closed loans and strong performance.

Article written by Matthew A. Miller, President of ConfiCasa Mortgage International – 12 March 2009

About the Author: Matthew A. Miller is President and CEO of ConfiCasa Mortgage International. ConfiCasa Mortgage International is currently the longest standing provider of cross-border mortgages for Mexico properties with over 10 years of experience. A U.S. based company with office locations in Houston, Cabo San Lucas, Puerto Vallarta, Manzanillo and soon-to-be open Cancun/Playa del Carmen, the Company maintains a deep expertise in Mexico mortgage lending and one of the strongest track records of execution with over 1,500 cross-border Mexico mortgage loan closings.   Learn more about ConfiCasa Mortgage International.

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