How does the process of buying a place in Mexico differ from buying a home in the U.S.?
While the offer process itself is relatively similar, the escrow and title processes are somewhat different. The offer process is effectively the same with the exception that most agencies use a dual-column bilingual format so that the contract is in Spanish and in English, with the Spanish side prevailing under Mexican law. A counter-offer process follows and is very similar to that of the U.S., except for backup offers and multiple offers.
Once an offer has been agreed to by all parties, an earnest money deposit is placed in escrow with a reputable title company, such as Armour Secure. These companies will hold the escrow funds (which are 10% of the purchase price for the earnest money deposit and the subsequent 90% funds for the balance of the purchase) until the closing and will disburse these funds according to a mutually agreed upon letter of disbursement signed by both the buyer and the seller.
Along the coastline and near the border of Mexico, foreigners can hold title through a fideicomiso (often called a "bank trust") vs. Mexicans who can purchase this property outright (or "fee simple"). The property is held in a trust through a Mexican bank, wherein the bank is the trustee, you are the beneficiary, and you designate substitute beneficiaries upon your demise. Fideicomisos are active for 50 years and are renewable after that. (Do not be confused, this is NOT a "lease".) In fact, the original Fideicomisos were effective for 30 years and many are currently in the process of being renewed to 50-year Fideicomisos at this time. The process of renewal is relatively simple and inexpensive. Furthermore, in the event of death, the heirs do not need to go through probate as the property is in trust and they are already designated as the substitute beneficiaries. There is a renewal process that is necessary with accompanying fees, but it is simple.
In the event you have a loan secured by your Mexican property, the lender will require that they either have a mortgage (Hipoteca) against your property or, more commonly, establish a "fideicomiso en garantía" (referred to as a "guaranty trust). The lender will be placed in the first position as the first beneficiary and you, as the borrower, will be on title as the secondary beneficiary. You still have the substitute beneficiary according to your designation.
It is important to note that anybody can be your substitute beneficiary, they do not have to be blood relatives. In addition, you can even have a charity as your substitute beneficiary, but the documentation will be extensive. If you wish to do this, you will need to plan and provide this information to the Notario as soon as possible so that the fideicomiso bank will have enough time to review and approve the documentation.
The entire process can be as short as 30 days and most commonly is between 45 and 60 days. If the escrow includes any holidays, please make sure you plan accordingly, as governmental offices, including Notarios, may be closed, thus causing delays.
All of this is coordinated through your Realtor and the Notario Publico. While it sounds somewhat complicated, a good Realtor will make the process virtually effortless for you, only requesting certain documentation that will be necessary to complete the process. Pursue the adventure and enjoy the process of buying your new home in Mexico!
What questions should I ask when selecting a Realtor in Mexico?
Selecting a Realtor is as crucial as choosing a doctor, attorney, or other professional advisor or confident in your life. Purchasing a home is the single most important financial decision you'll make in your life, so it stands to reason that selecting the professional that is going to guide you through that process is the most critical aspect of making the right real estate decisions and getting the proper guidance. When selling a home, the Realtor selection process is perhaps even more critical.
Let's look at the purchasing side first. Since purchasing a home is a lengthy process overall, from reviewing the market to previewing the properties to deliberating and negotiating once you've found the right property, to the entire escrow and closing process, a relationship is being formed with you and your Realtor. It is essential that you are working with somebody that you trust and feel comfortable with as you'll be very closely connected with them for months at a time. Often, the bond that is created with a Realtor will continue for years after as a friendship can easily be formed during this entire process.
The Realtor with whom you're working must also understand you and what you're looking for in a home. A good Realtor will listen to all your needs and wants in your prospective new home and will create a picture in their mind. From that picture they'll rely on their research materials, such as the MLS, and their connections in the industry, to accurately describe your desired home to others and search through all the listings available, weeding out those that don't fit the primary criteria and alerting you to those that are most likely to suit your needs.
In the home search process, your Realtor should be able to respond to your questions, and/or get you the information from reliable sources that you need to make an informed decision. A seasoned Realtor knows that it's not about making a sale - it's about providing you with all the tools to make the proper choice for you. Only then will the deal come. Therefore, a good Realtor will not resort to pressure tactics. However, it is essential to keep in mind that while you may be pressured in a situation because "another offer is coming" or "somebody else is interested in this property", it may merely be the Realtor keeping you informed, and not intentionally applying pressure.
From the selling side, experience, expertise, and professionalism would be the most critical elements to consider. While these are valuable in a buying situation, they are essential in the sales side. How many years has the agent been in business or in the area? How are they determining the value of your property - verifiable comps or "from the air"? What type of presence and reputation does he/she or, perhaps more importantly, their brokerage have in the community? Since the MLS is a primary means of marketing a property, are they a member of the MLS systems and the local real estate board (in Mexico, it's called AMPI)? Have they sold your type of property before or, in some cases, your price range? What will they do for you in the realm of marketing? Will they be present at showings or are they just going to hand out keys? These are only some of the questions to ask and to have responded to with your satisfaction to determine who the best Realtor would be to work with regarding selling your property.
Of course, sometimes it just comes down to a gut level feeling and that's OK too.
What can I expect to pay for closing costs as a buyer?
Closing costs can vary based on the purchase price of a property. This is because some of the closing costs are fixed and others are a percentage of the appraisal or purchase price value. Closing costs are typically between 3-8% of the purchase price, on the lower end for higher priced properties, and on the higher end for lower priced properties for the reasons just stated. These costs do not consider if the buyer is securing a mortgage. Closing costs for a buyer include all Notary fees (the attorney who is required to perform the official closing), trust bank fees (including first-year trust fees) for foreign buyers, appraisal fees (for property tax purposes, not property valuation), property transfer taxes (which is the most expensive aspect of closing costs), Foreign Affairs Permits (for new trusts), and a variety of other ancillary expenses related to the closing. You may also have some pro-rated property expenses, such as prepaid property taxes by the seller, prepaid utility bills, prepaid homeowner’s association fees for condos, etc. These are calculated separately, as would be pro-rated deposits and rentals due to the buyer on rentals that occur after the closing.
Should I have an attorney review the purchase contract?
Absolutely! If you have any question or doubt in relation to a contract, Tropicasa has an in-house attorney that can help answer any of your questions. In addition, we use third-party Transaction Coordinators who are also attorneys to coordinate the closing between the parties and the Notary. But at any time if you wish to have an attorney review any aspect of the transaction and/or the offer documents, you should feel free to do so.
What inspections can I have done on a property I’m interested in?
Essentially, whatever inspection is going to make you comfortable with the purchase. Our contracts come with a variety of standard contingencies included, such as property inspections, review of deed documentation, review of financials, bylaws and minutes of condo associations when purchasing a condo, surveys, etc. If you have the need for a specific inspection, you have the ability to request it at the time of making the offer.
Should I buy a condominium or a private house?
This really is going to depend on your lifestyle and how you intend on using the property. Many of our clients opt for condominium living. It affords them the ability to “lock and go” since they are only going to be spending a portion of the year in their new home. The homeowner’s association takes care of building maintenance covered in the monthly fees for the condo, which alleviates the buyer’s involvement in ongoing maintenance. All that they have to be concerned about are the private areas of the condo, including terraces and other deeded or assigned private spaces. Some private homes are even in condo associations, which gives a dual benefit of more space and/or privacy along with the HOA maintaining common areas. However, a private home is what you may be used to and prefer. It may be more appropriate for families who need yard space, or those with larger pets. More privacy and independence for not being subject to HOA rules and bylaws is also a benefit for some. It simply depends on your lifestyle, how you entertain, and how you see yourself using your property. This should be discussed with your agent when searching for a property to make sure you find the perfect fit.
Can I rent my property in Mexico?
Renting your property is a common desire amongst buyers. Making sure that you are in a desirable location for rentals is going to be key in your search for the perfect property. If you are purchasing in a condominium association, whether condo or villa, make sure that the HOA allows rentals. If there are restrictions, make sure you understand what those are before committing. Some HOAs have minimum standards on timeframes that a property can be rented in order to limit the constant flow of traffic. There may also be restrictions to the use of common areas for renters vs. homeowners. You should also discuss your plans with an accountant, as there do exist both legal and accounting laws for properties that are rented in Mexico.
What can I expect my annual expenses to be in my home in Mexico?
The answer to this question depends on a number of variables. If you own a property that has common area dues/HOA fees, those costs will cover most of the exterior and common area maintenance, but not the individual maintenance and costs of your home. If you are buying a private villa, your costs are not shared, although they may be no more than what you would expect for a condo home of equal size with similar features. For example, electricity is the single largest expense for a utility that we have. If you are in a 3000 sq. ft. home vs. a 3000 sq. condo, your electricity bill may be virtually identical, if you have the same number of appliances and features. Obviously, if you have a pool, jacuzzi, and other features in a private home that you may not have to pay for individually in a condo, your electricity will be higher in the home. But remember, if the condo building has a pool and jacuzzi, those costs still exist, they are being split amongst the owners. So you could be paying for costs of services and amenities that you may not use. It doesn’t mean you can opt-out of paying for them, but they are worth considering when making the decision between a home or a condo. Expenses such as structural modifications and roofs, for example, will be more expensive in a home as there is nobody else with whom to share those expenses. Costs will go up in any property when you have tenants as they will often not turn lights or A/C units off when they vacate the property. So you should always keep those costs in mind when analyzing your rental rates. Overall, the operating costs of homes, especially because of the custom to have a property without a loan and the low cost of property taxes, will be significantly less than what you are used to in your home country.
Can I get a loan to purchase my new property?
Yes! Loans do exist in Mexico despite what you may have heard. That said, they will not be at the favorable rates you are likely used to given the sheer volume of loans that are issued in the States and Canada. Loans can range from 7% to 15% in Mexico, from institutional lenders and private lenders. There are new lenders on the scene offering loans in these single digits now, and with additional volume, the hope is that those rates will continue to decline. Most lenders require at least 30% to issue a loan and terms range from 5 to 20 years. Your agent can direct you to appropriate lenders and loan brokers if that is of interest. Keep in mind that if a loan is essential for your purchase, you should be prequalified before going out to see potential properties so that you don’t waste your time looking at properties that are not affordable. In addition, prequalification should eliminate the need for loan contingencies in your offer, as loan contingencies can put you at a disadvantage when negotiating on your desired property.
What are the benefits and pitfalls of buying in preconstruction?
We have prepared a quick guide to preconstruction that will answer most of your questions about this process. You can find the guide here. [This should be a link to the preconstruction guide that was created for Las Verandas.] Of course, if you have further or specific questions, please ask your agent.
I keep hearing conflicting rumors about changes in the Mexican Capital Gains Tax. Can you help clear up the confusion?
The law regarding capital gain taxes has always and will continue to change. Mexico is no different than any other country that levies taxes in that it will continue to modify its tax codes to meet its needs.
Notarios do not make the law; however, they are empowered by Hacienda (the Mexican tax authority) to enforce it and collect the taxes on behalf of individuals. The requirements for individual Notarios can vary and discussing your specific circumstances with a Notary is important for the Notary to properly analyze your taxes.
Also, remember that the selection of the Notario is the choice of the buyer - after all, they are paying the bill. However, sellers may request the services of a particular Notary with the approval of the buyer. AT ANY TIME, the tax law can change, so please ask your AMPI Realtor or Notario what the current law holds for you concerning your capital gains tax obligations.
What are the things we need to look out for when thinking about ejido land?
EJIDO. The word strikes fear and uncertainty into the minds of most foreigners. And well it should. Ejido properties (Mexican co-op farmland) are off limits, even though many have "purchased the rights to use" these properties through what is called a "Presta Nombre" (literally translated, lent name). If you are thinking of purchasing a property that has “ejido” status, please consult with an attorney.