Mexicans get mortgages all the time from financial institutions. Mortgages in Mexico have interest rates of 9 – 13% annually. A North American will not get a mortgage here in Mexico from a financial institution. Instead, he would have to get it from a private source which is called hipoteca (mortgage).
Generally speaking, a North American cannot get a loan from a bank in Mexico. As an example, a client from Texas got a mortgage through a bank here in Mexico because Bancomer (a bank in Mexico) was affiliated with his bank in the United States. He set up the loan with Compass Bank in Texas, went to their sister bank in Mexico, and he got a mortgage. You can’t walk in to any bank in Mexico and say, “I’ve got all this collateral up at home and I’d like to get a mortgage here.” They’re not going to give it to you.
That leaves three different sources to buy a property in Mexico: paying in cash, seller financing, and third party financing (hipoteca.)
For example, let’s say you wanted to buy a $300,000 house and you only had $200,000. I could set you up with a couple of people and they would loan you money. I know a guy who charges an annual interest of 12% with a minimum down payment of half the total price. They're not going to give it for 20 years- probably for 10-15 years. It’s still a mortgage.
The seller sells the house to the buyer, and the buyer, either in that deed or in a separate document, creates a document where it stipulates that he still owes $100,000 to the guy who loans them money and the collateral is that property.
Let’s say I sell 45 homes a year. Out of those 45 homes, 95% of them are paid in cash. In a year, I may get 2 or 3 people who say, “I really like that house. It’s $300,000 and I have $200,000 right now. My money’s tied up, and I get highly penalized if I pull it out of my IRA. Here’s my offer: $200,000 down payment, seller financing for 2 years on $100,000 anywhere from 6-10% interest.”
You could pay it interest only, depending on how we set it up, or you could set up a mini mortgage but that wouldn't be worth it because most people don’t want to pay the interest and want to pay the lump sum when they have the cash to do so. That’s called the Reserve of Domain.
Reserve of Domain is different than a mortgage in that it’s more user-friendly, cheaper to set up, and easier to work with. I’m buying your house, you’re selling for $300,000. I tell you, “Here’s my offer: I’ll give you $200,000 right now at the closing, the other $100,000 I’ll liquidate in two years. I’m going to pay you 8% interest on the money for the two years.”
You have the deed, and the seller and the buyer have a mutual agreement in the deed. That’s what’s called the Reserve of Domain, meaning the domain isn’t totally given until the reserve is met. So when he liquidates $100,000, the seller goes back in to the notary and says, “I’ve received all my money.” He then signs it off before the notary who then goes to the public registry and lifts the reserve out of the actual deed. Now the buyer has a free and clear title of that property.
That is what we deal with here in Mexico. If we’re financing, that’s 90% of what we do. Since the beginning of this year, I’ve had two or three people asking me about mortgages. I told them we can’t get them a mortgage here. If somebody says to me, “Oh I just need short term financing for two years,” then I try to put in the offer and let the seller finance. Some sellers want to do it, and some say no. If they need longer terms like 10-15 years, then I go look for one of the guys who will loan the money.
(Village home for over $300,000 USD, Ajijic, Mexico, pictured.)