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Welcome to Cross-Border Mexico Mortgage Financing

In today’s global economy, where much of the 2008/2009 recession is pinned to the housing crises that was fueled by zero down, low interest and easy to obtain mortgages, it seems crazy to be getting excited about new mortgage products. But that is exactly what we are excited about at ConfiCasa Mortgage International . . . new mortgage loan programs; for Americans and Canadians purchasing a second or retirement home in Mexico. Why are we so excited? Because, these Mexico loan programs, which became available in 2005, have just recently become streamlined to actually work in a sound manner and are currently serving hundreds of people purchasing their Mexico dream property.

In the infant stages of the industry, there has been sporadic and diverse discussion about what we call "cross-border Mexico mortgages", but now the pendulum has swung with greater momentum than ever before. With the popularity of cross-border Mexico mortgages continuing to increase, American and Canadian buyers of Mexico real estate need to be better armed with the "lowdown" on cross-border Mexico mortgages which we plan to provide here in a concise, simple and informative fashion as well as in greater detail throughout the rest of our website.

We also encourage you to review the rest of our website in detail, as it has extremely thorough and helpful information that will arm you with all the information you need to know about Mexico financing. However, before you do, we hope Mexico Financing 101 will act as your gateway.

Clear Benefits to Financing Your Mexico Property

So why do you want to know about the benefits, intricacies, and limitations to Mexico mortgages? Well, Mexico has earned itself the title of the #1 destination for retirees AND second homes! There are few alternatives when buying a home other than cash and even with the adverse nature of the U.S. mortgage industry, the benefits in financing properties is substantial! In other words, with the amount of American and Canadian baby boomers that are looking to Mexico for a second home or to retire, affordable financing is always a beneficial option. So here are the obvious and not-so-obvious benefits to financing your Mexico property.

  • Lack of Alternatives. In the past, those that used cash to purchase a Mexico home (or condo) often obtained this cash by leveraging a home equity line on their U.S. residence. Given the state of the U.S. housing market, it has become incredibly difficult to do this, thus eliminating a major source of financing for Mexico home buyers. The future of U.S. home equity lines also is more likely to become more rigid in terms of guidelines, including qualification and loan amounts.
  • Significant Financial Flexibility/Affordability. With down payments for Mexico mortgages as low as 20%, more desirable properties are now within your reach and purchasing a second home with the intent to retire in the near future is a wiser notion!
  • Deductible Mortgage Interest. According to IRS Publication 936, mortgage interest paid on a primary or second home is tax deductible in the U.S. up to $1 million ($500,000 if married filing separately). Further, all non-recurring closing costs are also tax deductible. The Publication language does not specify whether the home must be located in the U.S., which enables those deductions to be applied to your financed Mexico Property. Of course, situations vary and therefore, one should consult a U.S. tax professional on this issue.
  • Professional Guidance . . . A lender is on your side. In addition to financial flexibility, financing through a lender provides you with a trusted professional advisor who will look out for your best interest, ensuring your purchase is executed in accordance with Mexican law. As mentioned above, the process has finally become more streamlined than ever before, which further assures the confidence level in owning Mexico foreign property -- if the lender is willing to back property financially, the old mentality of whether it’s safe is long gone.

A Brief Bit of History on the Cross-Border Mexico Mortgage Market

We could bore you with a very detailed version of the events leading up to now, or keep it brief and at a high level. To respect your time, we chose the latter of the two.

The 1990’s and early 2000’s were a time where there was significant purchasing of Mexico real estate among American and Canadians with little mortgage financing options available. During this time, almost all purchases were made with cash (estimated at over 99%). A few select regional banks offered limited programs but such programs were not well-known, hard to find, and very costly, with interest rates at 13% or higher with 40% or more down.

Beginning in 2004 and 2005, U.S. title and escrow companies began entering Mexico as the real estate purchasing process began to take steps to mirror that of the U.S. Just after the entry of the U.S. title companies into Mexico, several banks and other lenders realized the safety in foreign ownership of Mexico real estate as the result of escrow and title services as well as to the way in which transactions are structured (through a trust). These lenders developed Mexico mortgage loan programs (as we know them today) to meet the financing needs of foreigners purchasing Mexico real estate. Many of these lenders have continued today and have refined their processes to make it seamless, transparent and effective.

So What Type of Mortgage Financing is Really Available?

At the end of the day, you want to know what is really available in today’s cross-border Mexico home loan market. Well here it is (and this should save you many hours of searching the internet as ConfiCasa represents all lenders in the market including an exclusive lender only available through ConfiCasa). The upside is that the Mexico mortgage financing programs available today are attractive and affordable. The downside is "attractive and affordable" are relative terms. . . . more on this to come in the next section.

Overall, there are many different loan program options in Mexico, offered through several international and U.S. lending sources. In most cases, such loan programs are offered through a mortgage broker, much like in the U.S. and in Canada. Also, similar to the U.S. & Canada, programs and rates are subject to change.

While each loan program has different variables which drive interest rates, down payments, loan duration and term/amortization, one may typically find the following general parameters in a cross-border Mexico mortgages (and yes, these are not as attractive as in the U.S. but look where that got us . . . again more on this in the next section).

  • Eligibility: U.S. citizens, Canadian citizens, and U.S and Canadian Green Card holders
  • Down payment: A minimum down payment of 20% is required. For the lowest interest rates, down payments of 30% to 40% are required
  • Loan Duration: 3, 5, 7, 10 year interim ARMS; 15, 20, 25 and 30 year fixed rate
  • Term/Amortization: 10, 15, 20, 25, and 30 years
  • Credit scores: Minimum of 650
  • Interest Rates: As low as 6.75%, but for more attractive down payment options and higher loan amounts, interest rates range from 7.5% to 9.5%.
  • Minimum Loan Amount: U.S. $100,000 to $150,000
  • Maximum Loan Amount: None, on a case by case basis
  • Currency: All loan programs are denominated in U.S. dollars
  • Property Use: Primary, Vacation and Investment Properties
  • Property Type: Single Family Homes, Town Homes and Condominiums
  • Eligible Locations of Property: Lending is available in all top resorts areas such as Cabo San Lucas and surrounding areas, La Paz, Loreto, , San Felipe, Tijuana/Ensenada/Rosarito Corridor, Puerto Peñasco (Rocky Point), San Carlos, Mazatlan, Guadalajara, Ajijic/Lake Chapala, San Miguel De Allende, Puerto Vallarta, Barra De Navidad, Manzanillo, Ixtapa/Zihuatanejo, Acapulco, Puerto Escondido, Huatulco, Merida, Riviera Maya Corridor (Cancun, Playa Del Carmen, Puerto Aventuras, Tulum, Cozumel, Isla Mujeres) as well as other resort areas throughout Mexico on case by case basis.

Clarifying Many Misconceptions

Rates, Down Payments and Loan Program Options
The biggest question asked to a mortgage broker/lender (and we are sure you are thinking this exact question after reading the programs in the previous section) is "Why are rates and down payments higher than in the U.S. and Canada?" First, it is important to understand that interest rates in Mexico second and retirement home financing are quite similar to that of U.S. and Canada second home mortgages. Once that is understood, the question then becomes "Why are rates and down payments higher for Mexico financing than for primary residences in the U.S. and Canada?" That answer is fairly simple to explain and may be answered in two parts.

First, lenders offering cross-border Mexico home financing programs are U.S. and international finance institutions, lending in a foreign country’s second and retirement resort home markets. The key words there are "foreign" and "second and retirement home resort markets". While we (and you) already know that Mexico’s resort markets are a safe place and have huge potential as they continue to become the premier destination for second homes and retirees throughout North America, they are still different than the U.S. or Canada. Therefore, some country risk does exist for lenders as does the risk of "second and retirement home resort destinations".

Second and more importantly, the financial institutions that underwrite these loans hold onto the loans as opposed to packaging them and selling them in the secondary market (think the U.S. mortgage market a couple of decades ago). Further, government created agencies who purchase and guarantee such mortgages (as done in the U.S. through Fannie Mae, Freddie Mac or the FHA) do not exist for Mexico mortgages. If you have somewhat followed the recent U.S. housing crisis you may have learned that packaging and selling loans in the secondary market drives rates and down payments lower as this method was supposed to decrease risk to the ultimate note holder. But as you also may know, this really didn’t spread risk but created risk that was not at all understood, thus resulting in the housing market landslide that we are seeing today. So while down payments and interest rates may be higher for foreigners buying Mexico real estate as compared to the U.S., there is certainly upside to all of this. The upside is a decreased likeliness for Mexico mortgages to create the problems seen recently in the U.S. real estate market.

Aside from higher interest rates and down payments, the newer types of enticing loan programs that were rolled out in the U.S. over the last several years, which included teaser rates and interest only mortgages, do not exist in Mexico (for the same reasons that lower interest rates and down payments do not exist). And we all know how these attractive loan programs also contributed (among other things) to the U.S. housing downturn when rates reset and borrowers are forced into foreclosure after realizing they can no longer afford their mortgage payment.

While higher interest rates and higher down payments may be a bit tougher to swallow, they are good news for Mexico real estate market as they mitigate many of the risk factors seen in the U.S. and will help ensure that the Mexico mortgage and real estate market thrives for a long time!

Costs
Many people are under the misleading notion that cross-border Mexico home financing programs are more expensive than those in the U.S. On the surface this may appear true, but we can assure you that it is not. To understand this myth, one must first understand how U.S. mortgages work. Rarely are upfront points charged on a U.S mortgage loan, making such mortgages appear "free of cost". However, "transparency" (or lack thereof) and "free" are two very different concepts. What a U.S. mortgage borrower may not know is the rate you are obtaining typically includes a yield spread premium (or YSP). The yield spread premium is the cash rebate paid to a mortgage broker based on selling an interest rate above the wholesale par rate for which the borrower qualifies.

The difference in the interest rate you are getting and the one that the borrower qualifies for (the YSP) is not always well disclosed to the borrower, creating the perception that the mortgage is free (but we all know nothing is free and U.S. mortgage brokers have to get paid somehow; despite the fact that U.S. mortgage brokers have received negative press as of late highlighting the "bad guys" and the most extreme cases, brokers play a sound role in the U.S and Mexico financing process). In fact, in many cases, U.S. mortgages that include an added interest premium (through the notion of yield spread premium) may cost more over the life of the loan than a cross-border Mexico mortgage which only charges points up front. The difference of the two is that a borrower pays the full cost of the loan at closing (for a Mexico mortgage) as compared to spreading the costs over the life of the loan through interest payments (for a U.S. mortgage).

Underwriting Process
Today, the underwriting process is the relatively the same among U.S. and cross-border Mexico mortgage financing. While the underwriting process for Mexico home financing has maintained more rigid guidelines than in the U.S. over the last several years, the U.S. is re-adopting such guidelines given the current U.S. housing market turmoil. As a result, Mexico mortgages may now even be quicker or easier in many cases.

Closing Process
If you have researched cross-border Mexico mortgages you may have been informed that the closing process is a nightmare. This has some merit historically when mortgages were first rolled out several years ago and each lender and broker was figuring out the process, but is not currently an accurate assessment. Overall, Mexico’s culture and government is very different than that in the U.S., for the better and for the worse (depending on who is looking at it). Therefore, things take longer and often have more steps. Whether you are paying with cash, mortgage financing or some other type of creative financing mechanism, the real estate closing process in general is different in Mexico. When a mortgage is involved, it is a bit more complicated but not significantly more complicated. The only difference is that there is one more party (the lender) involved for approval and signing of all documents. Often lenders are blamed for the requirement of a Fideicomiso (trust), but that is not correct. A trust is required despite the method of payment. All in all, an individual purchasing Mexico real estate with financing is looking at an increase of about 15-30 days for closing with mortgage financing as compared to with cash.

The Future of Cross-Border Mexico Mortgages

We truly believe that mortgages in Mexico are the wave of the future and therefore are investing heavily in this belief. There are few high profile real estate markets across the world that will continue to survive on cash only. And if you really break it down historically, where did a lot of this cash come from that was used to buy Mexico real estate? From home equity lines or mortgages derived on buyers’ primary residences or from leveraging other assets such as stock portfolios. So, at end of the day, cash was not really cash in the first place. And with the U.S. and global housing market down for what will probably be several more years, a greater number of buyers will continue to seek alternative methods of financing such as cross-border mortgage financing for their Mexico home.

With all this said, there is a great deal of information when exploring Mexico mortgages. As much as we try to break it all down and arm you with the most important information, you will ultimately have more questions. We therefore recommend you contact ConfiCasa so we can help you obtain the financing for your Mexico dream home!

The content for Mexico Mortgage 101 is also included in the Mexico financing chapter of the newly published E-book, "Move to Mexico -- and Keep the Mexico Dream Alive During These Hard Economic Times" which can be purchased at http://www.movetomexico.com/eBook.html