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 News Around the Republic of Mexico | May 2005 
Buying In Mexico Is Getting Easier
 Tom Kelly - HeraldNet.com
| | The bottom line? Lending in Mexico has become more attractive to lenders and safer for consumers. |
We have friends who just returned from a much-needed spring break in sunny Mexico. They were able to dodge the aggressive time-share pitches yet were tempted to buy a condominium of their own near Los Cabos for family getaways and vacations.
"What do you know about financing Mexico?" they asked. "We've heard that the interest rates from Mexican banks are sky high."
How have United States citizens financed homes in Mexico? The common practice had been get out your line-of-credit checkbook, add any savings you could muster and then pray the seller would "carry the paper" until you found another way to refinance the balance.
Now, with changes in the appraisal and foreclosure process, U.S. lenders have rolled out programs aimed at second-home buyers and retirees.
Fixed-rate loan programs typically require a 30 percent down payment and an origination fee of 2 percent of the loan amount. Interest rates average 1.5 percentage points higher than the going rate in the U.S., depending upon down payment and credit score.
Lenders know there's a huge niche south of the border and have begun to jockey for position in some of the more attractive markets. Birmingham, Ala.-based Collateral International, now offers fixed-rate and adjustable-rate mortgage programs for primary and second home buyers under its "Mexico: My Dream" campaign, which debuted last year.
Robin Reyes of Collateral International says he is getting the most interest from retirees and baby boomers who are looking for an investment they can enjoy.
"Almost all of them are looking for a place in Mexico they can rent out," Reyes said. "Our strongest financing market probably has been Puerto Vallarta, but the price numbers are a lot higher in Los Cabos because there are more expensive homes there and generally wealthier people."
According to Aida Pantoja Maynard, international lending director of Minneapolis-based GMAC-RFC, one of the key elements that has been missing for lenders is an exit strategy. There is no secondary market (such as Fannie Mae and Freddie Mac) to which lenders can sell loans made in Mexico.
GMAC-RFC is now playing an active role in developing those conduits, which should make pricing more appealing for consumers. Many foreigners are still paying a premium to finance their deals, either through loans at Mexican banks that can charge interest rates greater than 13 percent or through short-term builder financing.
In addition, lenders must be assured, through a competent title search of the property and issuance of commitment for title insurance, that there is a complete chain of title for the respective residence. They want to know how the title is vested and that it is valid.
Two other factors have been challenges for U.S. lenders interested in tapping the Mexico market. One is the enormous amount of red tape lenders face when a borrower defaults and the lender attempts to foreclose. The other is the traditional Mexican appraisal. Most appraisals in Mexico are geared toward determining replacement costs. Lenders want to ascertain market value through comparable sales.
"There have been improvements on both fronts," Maynard said. "In 2003, the Mexican legislature provided some clarity to the foreclosure provision. These measures have been abbreviated and stipulate a non-judicial foreclosure when the property is held in the Mexican trust."
Since foreigners are not able to enter directly into contracts to buy coastal real estate, they must have a bank act on their behalf - similar to a trust established to hold property for minors. The bank trust, or fideicomiso, does not apply to property in the interior of Mexico being acquired by non-Mexicans.
The bottom line? Lending in Mexico has become more attractive to lenders and safer for consumers.
Tom Kelly's book "How a Second Home Can Be Your Best Investment" (McGraw-Hill) was written with John Tuccillo, former chief economist for the National Association of Realtors and is available in local bookstores and on amazon.com. |
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