GMAC Real Estate Challenges When Buying in Mexico
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Challenges When Buying in Mexico

Takeaways

  • Mexico has instituted changes making U.S. lenders more secure in offering mortgages.
  • Buying a second home in Mexico is not impossible, but does require some research.
  • Understand the facts about "ejido properties," the "restricted zone," and what both mean to U.S. buyers.

Did you know?

  • The "restricted zone" includes all real estate within 31 miles of the Mexican coastline, and 62 miles of any border.
Mexico is an option for a second home. At one point in time buying a second home in Mexico was difficult and risky. Because U.S. lenders didn’t trust the Mexican real estate market, investors who couldn’t buy real estate outright were forced to take a chance with short-term builder financing, or borrow through Mexican banks charging a high interest rate. The problem for U.S. lenders was red tape when attempting to foreclose on Mexican real estate, and a distrust of the way Mexican appraisals valued the property.

The Mexican government has made recent clarifications in foreclosures. These changes, and the fact a secondary market for Mexican real estate loans is beginning to develop has lured U.S.-based lenders into the market. All of this is good news for investors looking for a second home in Mexico, but there are still some challenges to keep in mind.

The Restricted Zone

One challenge is you can’t directly buy a desirable beachfront second home. The Mexican Constitution forbids foreign ownership in what is known as the “restricted zone” including all land within 62 miles of any border and within 31 miles of any coastline. To buy into the restricted zone, say a nice little beachfront bungalow, a U.S. investor must utilize a special Mexican government trust established in 1972 known as the “fideicomiso.” This trust allows foreigners to buy real estate in the restricted zone by having a bank act on the investor’s behalf. The buyer does retain all rights of ownership, such as using the second home and selling the property, but the bank holds the title to the real estate.

Ejido Properties

Land in Mexico set aside for farmers is known as “ejido” property and can’t be sold until the real estate has been privatized in a process known as “regularization.” If you obtain a leasehold interest in an ejido property while waiting on its regularization, it’s best to wait before any development of that property. If you build on the leasehold land you might find the terms unaffordable after the property is regularized.

Buying a second home in Mexico is not impossible, but you do need to understand the nuances of the Mexican market. The upside is more U.S. lenders are beginning to do business south of the border.

Search for Second Homes for Sale

To search for a selection of second homes for sale, please visit the website of a GMAC Real Estate Office that serves the area where you'd like to buy a second home. To learn more about buying Second Homes or Vacation Homes, explore the rest of this section, or contact a GMAC Real Estate Agent.