Financing alternatives now available
for buying Cabo San Lucas real estate

By JOHN HAGGERTY
Century 21 Paradise Properties

Almost all of the enormous foreign investment in Los Cabos real estate over the last 20 years (which one reliable source estimates at more than $3 billion US) has been done with cash.

Buyers have had to borrow against U.S. equities, liquidate U.S. real estate or other assets, assemble cash from a group of  buyers, or do other creative things to assemble the funds to complete their transactions here.

In 2005, this picture has begun to change  –  and very rapidly – with ads from a number of lenders and representatives running in the local newspaper and magazines. This phenomenon is being duplicated in all of the areas of heavy American investment in Mexico.

One major U.S. lender is offering purchase money loans through several local brokers, a number of smaller banks and loan companies are offering their own products, and at least one other major U.S. lender is also moving into the market.

Most current lending is purchase money, but some companies are beginning to offer other products such as construction loans, refinances to take cash out of existing equities here, jumbo size loans for very expensive properties (of which Los Cabos has a lot), homeowner lines of credit, financing of developers with pre-approval of the projects for the ultimate buyers, etc. – in short, the whole range of loan types common in the United States.

There are significant differences and limitations.  Companies typically will lend a smaller percentage of the property’s value (known as “loan-to-value,” or LTV) than is common in the US, usually 70% and none more than 80%.

U.S. financing now available for buying Cabo real estate. Contact us for details.

 All lenders require high credit scores, and full documentation accompanying the application. Some have fairly high minimum loan amounts, restricting their loans to more expensive properties.

Only one lender that we know of will lend to Canadians, and most of these companies are not registered as required to make loans to Mexican citizens. 

Finally, loan rates themselves are higher than you are accustomed to in the U.S. – around 8% or a little higher as of April 2006, and most loans contain a prepayment penalty for two, three, or even four years.

The loan process is like the U.S. process in some ways, and significantly different in others. Most lenders will do a pre-qualification for you, so you know your abilities and limitations before looking for your dream home or condo.

Once you find a property you want and make an offer (remember to make it contingent on financing, if that’s what you need), you’ll begin with a loan application, using the same form used in the U.S., assemble required documentation (proofs of income and employment, proofs of bank balances, etc.), and get it to the lender’s processors, which so far, at least, are all in the United States.

You should get at least a preliminary yea or nay fairly quickly, release your financing contingency and solidify your purchase agreement, and then fill in any gaps in your loan materials for your loan processors while your Mexican closing process moves forward.

You can read separate articles describing that process in detail, elsewhere in our website, along with articles on the ownership trust (fideicomiso), its history and how it works, title reports and title insurance, and other subjects of interest.

Our office maintains a list of lenders known to be doing business here, including their contact information, latest known rates and limitations, etc. 

Contact Us or your Century 21 agent if you already are working with us, for more details and answers to any questions you may have.

Other articles of interest:

Buying Real Estate in Mexico

How title insurance protects you