Financing your Los Cabos Purchase
Los Cabos is seeing an influx of people looking to secure their piece of paradise in this era of Covid-19.
Finding a home you and your family can spread out in is possible; whether you prefer a gated community such as El Encanto de La Laguna, beach condo like Las Mananitas, or a one-of-a-kind oceanfront estate in Palmilla. Los Cabos is typically a “want to buy” market unlike the USA and Canada where people need to buy, it is mainly a cash market so financing is not often considered.
One of the differences in the Mexican real estate market from other North American markets is mortgage financing is not quite the same as their neighbours to the north, however, there are some options.
A seller may offer financing registered as a lien against the bank trust (Fideicomiso) – the seller and buyer agree on a monthly payment, interest rate, term, and the property is the collateral – a background check, credit rating and references are often requested. A mortgage company such as MexLend can help set up this as well as any other type of loan; in this case for both parties.
Investment Fund Financing Options
There are some Mexican investment funds that offer loans to foreigners. The cost of the loans is higher; however, they work very well for many buyers as it puts them in the position to offer cash to the Seller, which can be beneficial when negotiating the sales price and aiming for a quick closing date. 30% to 40% down payment is the norm. These are generally 0% interest rate loans, and they charge an administrative fee in lieu of interest. Terence Reilly of Mexlend says “two of the great benefits of financing the property in Mexico is that because of the structure, you are paying down the principle from your first payment. Most regular mortgages are front-loaded for 5 years with interest and you don’t even touch the principle. Also, these loans are in Mexico and do not affect your credit nor ability to obtain credit in your home country. So, if life throws you a curveball, you still have the ability to handle those emergencies”. These loans are in Mexican pesos, but there are a few US dollar loans.
So you have found your dream homesite and decide to build – yes there are construction loans set up based on the building schedule. The bank releases funds to the builder as the construction progresses and a timeline set for the completion date. Ask about a no prepayment penalty.
There are also Pre-Construction options. You pay the developer a 40% down payment and a 3% lock-in fee and the lender will hold the loan open for you up to 36 months until the home or condo is completed and ready to transfer title.
A line of credit or home equity loan from the USA or Canada will often offer better interest rates and can be an option for purchase. Interesting fact – a Mexican loan will not show up on credit reports in the USA or Canada.
Always Use Escrow
A third party company such as Global Escrow Solutions or TLA International Escrow Services. Always be sure to get your bank trust (Fideicomiso) and if you have a mortgage lien, and pay it off – be sure to have the trustee bank acknowledge and release it from the bank trust.
Are you looking to purchase vacation or investment property in Mexico? Contact – The Agency Los Cabos.