HOME ACQUISITION PROCESS FOR FOREIGNERS IN MEXICOForeigners may obtain ownership of property in Mexico. However, in accordance to Mexican law, foreigners cannot acquire direct ownership of residential property 100 kilometers from the border and 50 kilometers from the coastline. This area is known as the Restricted Zone. In the Restricted Zone, however, banks can act as trustees for foreigners interested in purchasing real estate. There is an initial fee to set up your trust and an annual maintenance fee as long as you have the trust. Generally, the initial fee to set up your trust is about $550 USD and the annual maintenance fee is approximately $550 USD. The bank, as trustee, must obtain a permit commonly known as the SRE from the Mexican Ministry of Foreign Affairs (Secretaria de Relaciones Exteriores) to establish a real estate trust and acquire rights in real property located within the Restricted Zone. The trust (Fideicomiso) is established for a 50-year renewable term and grants the beneficiary the right to possess, use, rent, modify, or sell the property. An advantage of the bank trust is the avoidance of probate upon the death of the beneficiary when a substitute beneficiary is named.
DEED OF TRUSTWhen you obtain a loan to finance the acquisition of a home in Mexico, you will sign a deed of trust that guarantees repayment of the debt. The deed of trust does not require life insurance and is included in the same trust that is used to acquire ownership of the property. The deed of trust will allow your beneficiary to acquire ownership of your Mexican home upon your death by paying off or refinancing your loan. In the alternative, the trustee will sell the property and pay the mortgage loan and pending fees, and the rest of the money will be given to your designated beneficiary.
CLOSING COSTSThe cost of your home mortgage loan is reflected in your interest rate and your closing costs. Closing costs include (i) points to compensate us for making the loan (ii) fees to cover our costs to process and underwrite the loan, and (iii) fees charged by settlement service providers, such as appraisal fees, notary fees, title insurance costs, trust fees, mortgage recordation and taxes. When you apply for a loan, the following fees are non-refundable: appraisal fee (approximately 0.10% of the home value), costs to obtain the permit to set up the trust and fees charged by the Mexican Public Registry to obtain a Certificate of Freedom of Liens and Encumbrances (approximately $1,200 USD), and the first $1,000-$1,500 USD of the fee charged by the Public Notary.
Closing costs are paid by the buyer and are usually about 6%-8% of the purchase price. The Local Mexican Government assesses a transfer tax of 2-4% of the purchase price to all real estate transactions. Other closing costs, such as title search, trustee, Public Notary, certificates, Foreign Ministry permits, and the registrations and filing of all legal documents are approximately an additional 4%. The seller is responsible for certain fees such as the capital gains tax and any unpaid utility and property taxes. All these fees need to be paid at or before the time of closing. Once the transaction is closed, the new owner will be responsible for taxes. Other ongoing costs include an annual trust maintainance fee, a loan servcing fee, and homeowner’s insurance.
CLOSING DOCUMENTSYou will be asked to review and sign a number of documents at closing. All legally binding documents will be in Spanish. We will provide a copy of all documents in English for reference.
GRANTING OF THE DEEDIn order to accomplish the transfer of title (escritura along with regime de condiminio), the mortgage loan, and its security, all parties are present at the time of the signing of the transaction, which will generally be before a Public Notary (Notario) of the city where the property is located. A Power of Attorney prepared by the Notario can be used if you are unable to attend the closing. The Notario is a government appointed official, and their services are required for the transfer of real estate property in Mexico, authorized to record the transfer of property at the Public Registry. The Notario is an attorney of record and the official representative of the government. A Notario has a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view.
Power of Attorney – In case you designate an attorney or any third person to represent you at closing, take in consideration that such person has to be present at the Public Notary in Mexico on the closing date, and has to provide the Public Notary with a valid General Power of Attorney granted by you.
NOTE: If you are married under the regime of joint ownership of property and wish to grant a Special Power of Attorney that includes faculties of Administration or Domain, the Power of Attorney should also be granted by your wife/husband. In order to be valid, the Power of Attorney has to be obtained through a Public Notary in Mexico or at a Mexican Consulate in the U.S.
THE LOAN PROCESS
In order to process your application for a mortgage loan, we will request a variety of information and a number of documents. In order for the process to go smoothly, you should be prepared to provide the documents and information we may request regarding your income and employment history, personal assets, liabilities and credit history.
As noted, in connection with your application, we will also order one or more credit reports on you from credit reporting agencies in U.S. In addition, we will obtain a credit report from Trans Union de Mexico S.A., a credit reporting agency in Mexico. If you have ever obtained credit in Mexico, the repayment history on those loans will be reported. Even though this information is not included in the determination of your credit rating, it may influence the approval of your loan.
Evaluating Your Application
Once you submit a loan application, we will evaluate your loan application based on a number of factors, including:
Your credit rating (often reflected as a numerical credit score)
Your mortgage repayment history
Your debt to income ratio
The value of proposed property based on an appraisal
The combined loan-to-loan value ratio associated with your loan
Right to Receive Copy of Appraisal
As part of the underwriting process, we will order an appraisal of the property you want to acquire. The appraisal is conducted to determine the fair market value of the property and is paid for prior to closing. There will also be an appraisal done for tax value (castral appraisal) ordered by the notario and paid for at closing.
MORTGAGE DISCLOSURES AND DOCUMENTS
Because your mortgage loan is secured by property in Mexico, closed in Mexico, and made by your lender in Mexico, it will be governed by Mexican law. But we realize that U.S. citizens are accustomed to receiving certain disclosures when applying for a mortgage loan. So we will provide several of the disclosures that you are accustomed to in the United States. These disclosures include:
Good Faith Estimate of Settlement Costs. This estimate outlines the anticipated costs associated with your loan such as points, origination fees, and fees charged by settlement service providers. In addition, it informs you of any settlement service providers we may require you to use.
Estimated Truth-In-Lending Statement. This statement shows, among other things, the estimated total cost of your finance charges, expressed as a dollar amount and stated as an annual percentage rate, and the estimated monthly principal and interest payment over the life of the loan.
Equal credit opportunity notice.
OTHER IMPORTANT DISCLOSURESInsurance
Property Insurance- We require each borrower to purchase insurance on the property used as collateral to cover any property damage. We may require that the property insurance meet certain requirements, such as guaranteeing that the insurer will pay the cost (or part of the cost) of rebuilding your home if an insurable event occurs. We also may purchase insurance at your expense to protect our interest in the collateral, in which case, you will be provided with all the information regarding the insurance and its costs.
Life Insurance- If a mortgage loan is secured through a guarantee trust, you will not have to purchase life insurance but you will have to designate a beneficiary of your property, because in the event of death of borrower, your beneficiary may pay off your loan to obtain ownership of the property or the trustee will sell the property and pay the mortgage loan and pending fees, and the rest of the money will be given to the designated beneficiary.
Title Insurance: You may conduct a title search and a title insurance policy or other protection document as written assurance as to the state of the title to the property securing your loan, as well as any independent, competent advice to protect your interests. If you are interested in obtaining title insurance for your home, you may obtain the insurance from First American Title or Stewart Title for an additional fee.
Shop for the best loan for you and compare the charges of different mortgage brokers and lenders.
Be informed about the total cost of your loan, including the interest rate, points, and other fees.
Obtain a “Good Faith Estimate” or other disclosure, of all loan and settlement charges before you agree to the loan.
Know what fees are nonrefundable if you decide to withdraw your loan application.