How to buy a house in Mexico as an American?

Buying a house in Mexico as an American is legal and a safe bet today. It is pretty uncomplicated, except for the procedure a foreigner needs to follow in buying a house in the restricted zone.

Mexico is an attractive destination for owning a house due to its rich cultural heritage, beautiful beaches, emblematic cities, steadily growing economy, and flourishing tourism sector, which promises a great future for Mexico and its people.

Types of Property & How to buy them as an American?

Property in Mexico is classified into three groups. This article will answer your queries about buying your dream home in Mexico under the following subheadings.

1. Buying a house in the Restricted zone of Mexico
2. Buying a house outside the Restricted zone of Mexico
3. Buying a house on the land associated with ejido.

1. Buying property in the restricted zone

Often when we hear that foreigners cannot buy property in Mexico, but they usually mean it for the restricted zone properties as prescribed by the Mexican Constitution.

Article 27 of The 1917 Mexican constitution says that a foreigner or a foreign entity cannot directly own land within 50 km of a coastline or 100 KM of a border.

But now, the Mexican government’s laid down ways for indirect ownership of property by foreigners in Mexico under the foreign investment law.

What is a restricted zone?

The Mexican constitution has designated the areas located 100 kilometres along the borders and 50 kilometres from the coastline of the Mexican territory as the restricted zones, where it is barred for the foreigners to acquire direct control over the properties.

How to buy property in the Restricted Zone?

Under this, a foreigner can own a house in the restricted zone in two ways.

A. Through a Bank trust or Fidei Comiso.

B. By establishing a Mexican corporation and buying property through it.

A. What is a Fidei Comiso & How does buying a property work?

• A bank trust that allows foreigners to get ownership rights to property in Mexico with the same rights as a Mexican citizen acquires. These bank trusts hold legal titles to the property and you’re a 100% beneficiary.
• The trust will not have any control over your property, and the you will have 100 per cent control over the property. You enjoy all the same rights on this property as you have in the USA, and the fidiecomiso controls none of them.
• These trusts are valid for 50 years and can be perpetually renewed.
• These are transferable, too. You can move the trust to another bank if it offers you better rates.
• The average rates are about 600 USD a year.
• Also, both the trust and the property can be transferred to the heirs when the owner dies. Hence, breaking the misconception that you lose your house to the trust when you die.
• This is also a misconception that you lose the house upon failing to make regular payments. It’s just that you have to pay it with some interest in such a case eventually. The bank cannot seize your house in case of nonpayment. The IRS ruling of 2013-14 specifically addressed these land trusts in Mexico. It ruled that these banks have no control over the house, and it belongs to the owner only.

B. By opening a Mexican corporation

Foreigners can also buy houses in Mexico by establishing a Mexican corporation. Here, the Mexican corporation would buy the property so the buyers could circumvent the bank trust process.

Setting up a corporation is a better alternative if you’re not looking to obtain a Mexican residency or if you wish to extend your property in Mexico on rent. It comes with its own set of cons, too, so you need to consult a good real estate agent about the option that best suits your requirement.

2. Property outside the Restricted zone

In the interior zones of Mexico, you can buy your dream house directly following similar procedures as you do in the USA. There are no special restrictions posed for purchasing a property in the interior zones. You might just miss the scenic beauty of coastal Mexico, but the beautiful cities and tourist spots in this zone are also breathtaking!

3. Purchasing a property associated with an ejido

• Ejido refers to Village Lands communally held by a community of people. It’s like a community property used for agricultural purposes.
• They don’t own the actual land but exercise usufruct rights on the land for agricultural purposes.
• Foreigners need to be wary of buying a house on land associated with ejido where the members have usufruct rights rather than original rights on the land. Only Mexican nationals are allowed to own ejido land legally, while it is strictly prohibited for others, and the government can confiscate such land.

How to finance your purchase of property In Mexico?

Now, let’s look at how can you finance your new home in Mexico. Below are some of the ways.

1. Mexico Bank Mortgages:

Mortgage financing in Mexico takes place in pesos. For foreign nationals, mortgage financing is comparatively a complex financing route. Also, you will find the interest rates on home mortgages are very high.

2. Cross border finance companies:

These companies excel in making financing available to foreign nationals buying property in Mexico, particularly Americans. These are also somewhat similar to mortgages but differ in certain aspects. The cons are that these companies charge you high fees for pre-payment, and they typically offer home loans on 7-10 per cent interest rates, which is also relatively high and doesn’t appear to be a fair deal!

3. Developer financing

Financing your purchase through developments that come with their financial plans is a reasonably satisfactory way. They often don’t cover the entire cost of your purchase well in advance. They instead offer you partial covers provided you first make the stipulated amount of down payment. They also offer rates between 7-20 per cent. Also, the loan term is comparatively much shorter than what you get through mortgages.

4. Obtaining a loan from your native country:

This is by far the best option as you can get cheap loans financed through banks or other lending institutions in your home country.

How to prevent any possible risks on your way to buying a home in Mexico?

Mexico is an appealing destination for owning your house, but the process has specific challenges. There can be legal, financial, and other risks on your way. These possible risks can be well dealt with proper planning for effective prevention. Being well within the ambit of the land law is the best way to keep any legal dangers at bay.

1. An authorized and credible real estate agent can help make your journey to owning your house in Mexico smooth.
2. Taking help from a reliable and trustworthy lawyer in Mexico can help you prevent any legal obstacles.
3. You also need to carefully choose the most suitable among the financing options available at your disposal to avoid any finance-related issues.
4. As mentioned, foreigners need to exercise caution and not deal with traditionally owned community lands or ejidos, as it may pose legal issues.

Hope this article was helpful.