Direct Owner Financing

Real Estate in Mazatlan

By Carol Sinclair de Ibarra from Walfre Real Estate

Direct Owner Financing

As most owners and prospective buyers know, there is very little financing available for home buyers in Mexico. The local banks will loan money to Mexican citizens and in some cases, legal residents, but the terms and conditions are not very attractive. Most foreigners buying real estate in Mexico will get a “better deal” going to their bank in the US or Canada, or just paying cash. Another option which has become popular lately is a transaction where the seller will agree to sell on terms. These terms can vary for 6 months to 10 years or more with interest which is usually above 6% annually. Normally, the buyer will have to make a large down payment, in excess of 35%. There are many different ways to do this and there is no standard practice.

To the seller, the obvious advantages are widening the market to sell faster at a better price. For the buyer, it can mean taking advantage of a good opportunity as well as having the time to liquidate other assets without pressure.

Once both parties have agreed on price and terms, it is very important to get the best professional legal advice possible before signing a purchase agreement. There are a lot of other issues to be addressed before closing the deal. For example, in some cases the seller will not agree to transfer the title until he has been paid in full. This may be acceptable if the term is short. In the case of a long term loan, in my opinion, the best solution is to deed the property to the buyer and to file a debt acknowledgement in the public registry signed by both parties. The property itself becomes the collateral for the loan. In this case, there are additional closing costs for the buyer which must be taken into account.

There are many important details and my best advice is proceed with extra caution. Hire a notary/lawyer with experience in bank trusts (“el fideicomiso”) and with experience in this type of transaction. If you don´t understand Spanish, make sure you have the documents translated. This is not the time to save a few pesos.