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Los Cabos Real Estate -Financing Options for Foreign Investors

Los Cabos Real Estate -Financing Options for Foreign Investors

Each year, an average of seven million North Americans visit Mexico. Statistics show that as many as 1.5 million Americans and Canadians purchase vacation or investment properties in Mexico every year, with the majority investing in beach resort destinations such as Los Cabos Mexico.

Financing through lending institutions in Mexico is a relatively new market. Up until just a few years ago, foreigners wishing to purchase property in Mexico had to have sufficient resources to buy Mexican real estate.

Unfortunately, not everyone can afford to pay cash for their real estate investment. So now that you've found your dream home - how are you going to pay for it? Fortunately, there are options available to you.

CONVENTIONAL FINANCING:

Financing offers flexibility. Instead of paying cash, financing allows purchasers to put down as little as 35 percent - making purchasing real estate in Los Cabos more appealing.

One possible benefit is you might be able to deduct the mortgage interest on your home in Mexico from your U.S. tax returns. Per IRS Publication 936, mortgage interest paid on primary and secondary homes up to $1,000,000 is tax deductible. There is no clause stating that the second home must be located within the United States, therefore it is the opinion of tax professionals that interest paid on a home loan on Mexican property is tax deductible. (Check with your tax professional to see how this applies to you).

The basic qualifications are:

· Must be a U.S. or Canadian Citizen or Permanent Resident of either country

· Employed in same line of work for a minimum of two years

· Minimum loan amount $100,000

· Credit score of at least 700

. Debt to Income 40%

Just like financing a property in other parts of the world, financing your property in Mexico requires income verification. Typically the requirement to verify income is two years tax returns, pay stubs and/or W-2 forms. Also some programs may require bank statements. Financing in Mexico is a new phenomenon so the lending requirements are a little stricter.

PRE-QUALIFY

Once you decided you are going to invest in Los Cabos Real Estate, it’s a good idea to get pre-qualified. This can be done in just a few minutes over the phone or in person with the financial institution you are working with. Once it is determined that you pre-qualify for a loan, your credit will be verified and you will be notified regarding the specific documentation that will be required.

After you have provided the necessary documentation, the final approval takes 15 to 30 days. Also an appraisal is ordered by the lender — this takes roughly 2 to 4 weeks. When the appraisal has been completed and all conditions of the loan satisfied, the closing process begins which takes anywhere from 60 to 90 days.

Also keep in mind that the closing costs are paid in addition to your down payment, so be sure to account for them when figuring your down payment.

OTHER FINANCING OPTIONS ~

SECOND MORTGAGES:

Many of our clients own or have equity in their primary residence in the U.S. or Canada. As a homeowner, you can use your home as collateral and borrow the needed money against it by taking a second mortgage. For example, if you own a home and you owe $150,000 and it's now worth $500,000, it's possible to take out a second mortgage on your home and borrow against the existing 350,000 dollars of equity.

One benefit of second mortgages is a faster closing time. In the U.S., funding for a second mortgage usually only takes only 2 to 3 weeks, where as financing in Mexico is going to add 60 to 90 days to the closing process.

Another consideration is that interest rates may be more attractive in the U.S. and Canada than here in Mexico so this should be weighted when considering your options.

OWNER FINANCING:

If the seller has clear title without any loans, (which is typical with Los Cabos Real Estate) the seller might agree to carry all the financing. In this instance, the buyer and seller agree upon an interest rate, monthly payment amount and terms of the loan and the buyer pays the seller on an installment basis.

Typically sellers require a down payment that can vary from 30 to 50%. Sellers feel more secure when the buyer has a significant down payment because buyers are less likely to foreclose if they've invested a lot of money upfront.

Owner financing usually has little or no qualifying. Even if the seller demands a credit report, the seller's qualification requirements are typically less, and more flexible than those imposed by conventional lenders.

Unlike conventional loans, buyers and sellers can choose from a variety of payment options such as interest only and fixed-rate amortization. Payments can include balloon payments, and interest rates can be negotiated.

Another advantage to Owner Financing is quick possession. Since buyers and sellers aren't waiting on a lender to process the financing, buyers can close faster and take possession earlier than with a conventional loan.