Puerto Vallarta, Mexico - With mortgages becoming more of the norm in Mexico and with ever-increasing loan options, our local experts – David Schwendeman and Terence Reilly of MEXLend, an industry-leading Mortgage Broker based in Vallarta - help you sort through the confusion by answering your personal Financing/Mortgage questions.
Q: Why are closing costs so high in Mexico? Kristy S, Seattle, WA
A: As in life, all things are relative. Closing costs for clients originally from New York City are comparable in Mexico, while closing costs here are higher for those clients from California or Texas. HOWEVER, the carrying costs and property taxes have been so low in Mexico that they more than make up for the closing costs in the long term.
Almost every client that has walked into our office in the past two months has been under the impression that the closing costs would run about 3% of the purchase. This percentage is all but impossible to attain these days. Jalisco has begun to mirror neighboring states and the acquisition and transfer tax alone has effectively now become 2.5% of the purchase price. This, along with the recording taxes, push costs to the 3% mark before we have started ordering permits, appraisals and engaging a required Notario.
Since so many of the costs are fixed, it is impossible to truly assign an exact percentage. For example, if the SRE permit for permission from the Foreign Affairs office of Mexico to make the purchase costs $1,300, well that $1,300 fixed-fee is a different percentage of a $100,000 purchase vs. a $1.5 million purchase.
That said, buyers need to have some sort of guidance so a good guesstimate with an all - cash purchase would be around 5% to 6%. If you are financing, then you can add another 3%.
Why does financing add to the cost? Well, there are fees associated with mortgaging a property. First of all, a commercial appraisal will be required and there is a fee for that, there are also Notario fees and taxes that are associated with a mortgage and lastly, there are bank and broker fees to be paid for getting the transaction done.
But again, remember that annual property taxes are very low here. If you are purchasing a $200,000 property, the annual tax will most likely come in at around $170—depending on exchange rates. The standard of living in Mexico for retirees and snowbirds far exceeds what is attainable in the US or Canada.
The more I work in the Mexican market, the more I am confident that financing or mortgaging a property is the safest way to purchase here. Part of the expense on the lenders part is the due diligence to ensure that the property that you are buying is indeed the property that you are buying and that the person selling you that property has the right to sell it. It sounds simple, but often times in an all cash transaction, these simple basics seem to slide by the wayside leaving the buyer spending a year or so sorting things out after they thought they had already bought the place. The legal costs combined with the stress and time spent obtaining clear and legal title, make up for any increase in costs.
We invite you to email your questions regarding buying or financing Real Estate in Mexico to buyinginmexico(at)hotmail.com.MEXLend, Inc. is a Mexican mortgage brokerage based in Puerto Vallarta that currently represents 8 different lenders offering 75 different loan options in Dollars and Pesos for buyers looking to purchase vacation or investment property throughout Mexico. To learn more about MEXlend, click HERE or visit MexLend.com.