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If you are thinking about buying a house in Mexico as a foreigner, there are certain aspects that you should be aware of before taking the plunge.
We also recommend that you contact a local lawyer who has a good understanding of Mexican laws and practices, in order to avoid potential misunderstandings and problems.
Buying a home in Mexico through a trust
Foreigners wishing to buy property in Mexico will find that they cannot directly own real estate in the so-called Zonas Restringidas (Restricted Zones). These are areas close to the coast and borders.
So how can a foreigner buy a property in these zones? This can be done through a trust. This is how it works 👇🏻
How does a homeownership trust work?
Within a structure of a financial trust, the bank acts as a trustee institution. This means that the title deed is placed in the name of the Mexican bank. In the case of foreign buyers, they are the beneficiaries of the trust, and have the same ownership rights as Mexican nationals. The foreign buyer may appoint co-beneficiaries and alternate beneficiaries at any time.
The buyer may live in the property, make any alterations to the property, rent it out, sell it, etc., subject only to the domestic banking rules for this type of trust. If the buyer sells the property to another foreigner, the same benefits can be transferred to the new owner.
In terms of obligations, the buyer must pay the property taxes, maintenance costs for condominiums, water and electricity supplies, and any other associated expenses.
The bank, which receives and manages the property, does so according to the instructions of the buyer/beneficiary. In other words, the bank cannot do anything with the property unless it receives written instructions from the beneficiary.
It is important to know that trusts must be renewed every 50 years, and entail annual costs of between 500 and 600 dollars -more than 530 euros-, which are paid to the trust institution.
This way of buying homes in Mexico also has advantages, such as protecting assets from the reach of creditors.
Steps for buying a home in Mexico
When buying a home in Mexico as a foreigner, a three-step process is followed:
• Offer to Purchase
• Promissory Agreement
• Irrevocable Trust Agreement
Step 1. Offer to Purchase
The offer to purchase is similar to the ‘letter of intent’ that is presented in other countries such as the United States. In this document, the buyer makes an offer to purchase a property at a certain price, within a certain period of time and submitting the necessary documents and requirements.
Along with this offer to purchase, the future buyer pays a deposit to the seller, who will keep the property off the market for the period of time established in the offer, to allow time for the documents to be reviewed and the transaction to be completed.
If the buyer does not purchase the property, the seller will return the money originally deposited, although the developer may apply some restrictions.
Step 2. Promissory Agreement
Although the promissory agreement is not the final purchase document, it is legally binding. It is similar to the letter of intent, but with a non-refundable deposit.
This means that the buyer pays the seller a deposit of 20% of the purchase price while the procedures to transfer the title deed to the trust are completed.
If the buyer does not ultimately purchase the property, this money is not refunded to the buyer except on special occasions when the buyer is unable to proceed because of problems with the trust or with the title deed.
Step 3. Irrevocable Trust Agreement
The final step for buying a home in Mexico is to enter into an irrevocable trust agreement, whereby the title deed of the property is irrevocably transferred to the trust.
The bank acting as trustee will ask the seller and buyer to provide the necessary data and documents related to the agreement.
These are the steps to follow:
- Select the bank that will handle the creation of the trust and act as trustee.
- The seller contacts the bank in order to give consent to transfer the title to the trust.
- The trustee applies for the consent of the Ministry of Foreign Affairs for the trust incorporation, which takes 5 to 10 working days.
- The seller or the notary public, before whom the Trust Agreement is to be signed, obtains a confirmation of title, a certificate of no encumbrances and a certificate showing that the property tax, known as “predial”, is up to date.
- These documents, plus any additional documents required by the seller, are handed over to a notary public who, together with the trustee bank and your lawyer, is responsible for establishing the trust. The notary public is legally obliged to proceed only when all the necessary documents have been provided in the correct form.
- Upon execution of the Irrevocable Trust Agreement, the title deed is transferred to the trust and the deposit that was put down at the beginning is subtracted from the purchase price. The buyer pays the remaining amount to the seller and gets access to the property.
This marks the completion or closing of the sale. The documents are then registered with a notary public and filed with the land registry.
Costs of buying a home in Mexico
These are the costs incurred by both buyer and seller when buying a home in Mexico:
- Legal costs: buyer and seller each pay their own legal costs.
- Closing costs: these include notary and public registry fees, as well as the costs of establishing the trust. These closing costs are paid in full by the buyer. Notary and registry fees are typically around 5-6% of the purchase price, and trust fees are between $1,500 and $2,000 upfront –around 1,800 euros– plus $400-600 per year –over 530 euros.
- Taxes: the seller pays the income tax derived from the sale, while the buyer pays the acquisition tax (usually between 3 and 3.3% of the purchase price).
Financing the purchase of a home in Mexico
Foreign buyers have several options for financing the purchase of a home in Mexico.
- The first step is to apply for a permit to purchase real estate in Mexico at the Dirección General de Asuntos Jurídicos, which is part of the Ministry of Foreign Affairs.
In this procedure, the buyer completes an application form that includes his or her immigration information, personal data and information about the property he or she wants to buy. This step can be carried out through a legal representative to whom the buyer grants special powers of attorney.
If the property is not located in a Restricted Zone, the rest of the steps are the same as for Mexican buyers.
- Once the permit is obtained, in order to apply for a mortgage loan the foreign buyer must have the FM2 or FM3 immigration form in order. Also, she/he must have lived in Mexico for a minimum period of time, be of legal age and have a valid passport. Income and a good credit history in your country and in Mexico must also be verified.
Mortgage loans granted to foreign buyers in Mexico usually offer fixed rates from 8.5% to 12%, and a minimum amount starting at 500,000 pesos –about 21,000 euros.
That’s it! If the foreign buyer meets these requirements, he or she will be able to buy a home in Mexico.
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