It took a long time for Canada and the USA to share credit histories with their North American partner, Mexico. American banks have come into Mexico previously trying to build market share by offering mortgages.
This is not a simple thing when the mortgage must be inside a foreigner’s trust. Most of the American banks failed in offering mortgages here. We see the growth of Mexican banks offering mortgages and equity loans using Mexican properties as collateral.
Foreigners with Mexican properties can use their American credit scores and the property here as the asset to borrow against. They will build credit scores in Mexico as they continue to pay off the mortgage.
Currently, underwriting requires a mortgage to be in a new trust: a guaranteed trust indicates the mortgage holder is the primary beneficiary until the buyer has paid off the mortgage. Any existing trust on the property being sold will have to be canceled.
The mortgage length is agreed upon between the lender and borrower, but we do not see long-term loans over 25 years and, in most cases, 10–15-year loans. We see more efficiencies with the Mexican banks.
Now we have more requests for equity loans, which have been popular in the US. The equity loan on the property (which is in a trust) will be a binding agreement in case of default by the borrower. As I know more about these newer loans, I will inform you.
There are guidelines on how much you can apply for a mortgage or an equity loan. There are no low downpayment mortgages, and it is not uncommon to see the lender offer to lend 65% of the sales price if the commercial appraisal proves to show enough value. An equity loan is to free funds to use for different reasons. An example of an equity loan being requested now is a client wants to borrow against the house equity to have funds available to cover his cost of living. He does not want to sell the house now.
Some equity loans are being used to open businesses. You need to think about the fact that applying for a mortgage on a resale property creates a big contingency. The sale will not close if the loan is not funded for any reason.
We have become accustomed to cash sales for existing trust properties. Preconstruction has been financed, with buyers making payments to the developer during the construction term. The buyer does not have any other source of financing than the developer direct.
Mexican banks do not currently offer mortgages to these preconstruction buyers. Most important is for the borrower, when paying off the mortgage, to be sure the paperwork from the bank payoff has gone to the notary. The notary must follow a process to remove the mortgage lien in the public registry and change the primary beneficiary from the mortgage bank to the buyers.
There will be a cost to transfer the 100% beneficiary rights of the trust to the foreign owners from the lender who has been primary beneficiary during the time of the mortgage. The foreigner continues to enjoy possession and rights over the property.
Secondary beneficiaries are named by the foreigners to succeed them upon their demise.
This article is based upon legal opinions, current practices, and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.
