The Truth about Foreign Investment and...

The Truth about Foreign Investment and

Borrowing Money in Mexico

A recent article I just read on one of the LinkedIn posts that refers on how easy is to borrow Money 

in Mexico, has caught my attention, and thus prompted me to write this article.

The plain truth is that it has never been more difficult, complicated, and all together partially impossible to borrow money in Mexico.  Whether this be in the Real Estate Mortgage Residential and/or Commercial areas, or on Small Business or PyMEs or Banca Empresarial (Business Loans) area.

Let’s start by talking about mortgage financing. 

Mortgage loans unless you are a Mexican National, or FM3/FM2 or legal immigrant, based on the new immigration laws recently instituted by the INS (Immigration and Naturalization Service) in Mexico, have been rather scarce.

Formerly, and at some point in time, we had a few lenders funding foreign nationals (mainly Canadian and Americans) and these were being able to obtain mortgage financing in Mexico with rather decent terms and lower interest rates than even those available for Mexican Nationals, but that is no longer available.

Today’s funding options for Americans and Canadians or foreign nationals wishing to purchase property in Mexico are limited to two Mexican banks.  And funding requirements, even thought the banks will consider income and credit verification from their country of origin, are limited to those potential borrowers obtaining a legal residency status in Mexico.  A process which if not properly understood and properly handled might be a great nuisance to the foreign borrower.  Not to mention the risk the applicant has of running into a non-scrupulous individuals that may simply just take their money and run. 

What complicates this process more is the fact that, unless you apply through a reputable and professional mortgage broker in Mexico who knows the mortgage process, in the US, Canada and Mexico, you will end up hitting a wall, for these banks do not have the processes and systems required for you to step right into a bank’s branch office and have a Mexican Loan Executive help you in the loan application process.  You might get lucky to find out they may at least have basic knowledge of the bank offering such a mortgage product.

Thus, the process is not easier, but has just become more complicated, unless you find the right mortgage broker that may be able to walk you through the whole process without hesitation.

Now and with regards to Commercial Real Estate Loans and Business Loans, whether start ups or business acquisition loans, they are no less complicated, if not more, if you are a foreign national trying to invest in a real estate project and or business in Mexico.

The primary bank requirements are:

You must have a corporation.

The corporation must provide 2 years Income Tax Returns.

The corporation/business must provide enough cash flow to allow for the payment of the loan without taking into consideration potential income generated by the project or the business you are acquiring.

Credit worthiness and credit history are a must for these types of mortgages.

These are just some of the principal requirements for foreign nationals to obtain either a residential loan or a commercial/business loan in Mexico.

Now, if you are being offered funding through a USA or any foreign bank, YOU MUST BE CAREFUL.  For unless the bank is working through a legal Mexican lending institution, which in turn makes it a Mexican Loan, THERE IS NO WAY a foreign bank, or lending institution can lend in Mexico for they cannot record a mortgage in Mexico, and thus guarantee their investment. 

So if you are being offered USD mortgages or any type of funding, either for the purchase of your home, or an commercial or business investment (project or real estate investment) in Mexico, ask the right questions.  Probe your contact and find out how is it they can provide the funding without being able to record the guarantee.

Same thing would apply to a Mexican citizen, non USA or Canadian legal resident, for he would not be able to walk into a Mexican Bank and request a mortgage to purchase a property in the USA or Canada, as simple as that.

And finally, there is the Hard Money lender in Mexico, which, is available, but will cost you and arm and a leg. You could find monthly interest rates ranging from 3% to 5%, and even up to 10% monthly interest rates in this type of funding.  Or they will charge you 15%-30% commissions at closing.

So if you are in the market for a mortgage loan, or a commercial/business loan to invest in Mexico Real Estate and or a business, do your homework.  Ask the right questions.  Probe your contact.  And make sure you are dealing with an expert in the field and reputable business enterprise.

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