The controversy over whether there are loans available in Mexico needs to be put to rest. The simple answer is yes! Since 2005, there have ALWAYS been easily obtainable loans for both Mexican Nationals and foreigners in Mexico. There has never been a time when loans were not available, it has always been a question of connecting with the right source who can match you with the loan that best fits your circumstances.
Concentrating first on foreigners in Mexico: For the sake of this article, a foreigner is a person of any nationality who does not earn income and have credit in Mexico. This includes US and Canadian citizens. Currently, there are US Dollar Loans through Alaska Financial LLC, a private lending source. Also, there are times when a Mexican bank will come forward with a Peso Loan geared towards non-Mexicans to broaden the field. Right now, Alaska Financial loans are available for ANY nationality as long as they can provide proof of income and a credit report from their home country. They can be used to purchase a property, refurbish a property or to simply cash out on a property. They are also available for corporations and can be used to obtain small commercial properties. There has never been a private lending program in Mexico that is this aggressive and eager to enter the market. In 2014 approximately $4 million USD in loans were quietly closed in Baja with our pilot program. This represented over $12 million in property, as many do not obtain the maximum loan to value. Nationwide in Mexico, the first year of the launch brought $12 million in loans for private sources representing over $35 million in properties financed. The program is now going more public and is expected to double in size in the next year.
Interest rates in Mexico are not falsely suppressed by the government as they are in the US. Banks and lenders do not obtain free money from the government and Mexico is considered an emerging country, so money is more expensive in this environment. Generally, for a US dollar mortgage, a 35% down payment is required and the interest rates range from 14%-16%, and while that may seem breathtakingly high, there many clients who opt for this loan. The main factors that play heavily in its favor are its ease to obtain and quickness to close and that it has no pre-payment penalty, making it a perfect bridge loan. The interest is tax deductible so, for example, if you were going to be hit with a 30% tax for taking money out of an IRA account, this loan would be a sensible option. If your investments are making you 10% per year by keeping them in the IRA, this bridge loan is now only costing you 6% per year, while you stave off the massive 30% penalty, until it goes away. You find the perfect home, you can pounce on it at a great price and pay the loan off in a year or two when you are ready.
In addition, a new Simultaneous Seller Carry Back Program is being launched in the Los Cabos area, to help eager sellers be able to offer much lower interest rates and still walk away from the closing table with their cash. The lender will “buy” that lower interest rate loan from the seller simultaneously at the closing table. The seller makes their sale and leaves with the money, the realtor makes their commission and the buyer obtains the home of their dreams at a more affordable rate. It is a win-win situation for everyone involved.
There are no predictors or crystal balls for telling exactly when a market hits bottom, but most real estate and financial experts believe that the current lower home prices in Mexico will not last long. They will begin to climb exponentially as the economy continues to heat up. We conveniently forget that most Americans and Canadians amassed their wealth by taking advantage of the mortgage systems in their countries when interest rates were comparable to what they are now in Mexico—or even higher. Taking advantage of a loan to get you into a great deal now, is a terrific tool to have at your disposal. Now is the time to invest in Mexico.
