Dreaming of a new life in Mexico with lower cost of living? Here’s what you need to know about buying a home in Mexico as a US citizen!
If you’re thinking about buying a home in Mexico as an American, there are some important things you need to know.
From getting a mortgage in Mexico and paying property taxes in Mexico to whether or not you can buy a house in Mexico without residency, the process of becoming a property owner in Mexico is significantly different than in the United States.
After reading this post, you will know the answers to important questions like:
- Is it worth it to buy a house in Mexico?
- Can a US citizen get a mortgage in Mexico?
- Do you have to pay property taxes in Mexico?
- Can you buy a house in Mexico without residency?
- Can an American buy a house in Mexico?
Especially if your Spanish skills are limited, it’s vital that you understand the requirements for buying a home in Mexico as an American so you can tackle the process with confidence.
Is it worth it to buy a house in Mexico?
One of the biggest mistakes expats make when moving to Mexico is committing to life here without first giving living in Mexico a trial run.
Trust me: I understand the desire to get settled in as quickly as possibly. You’ve been planning this move for years & you’re ready to dive in head first.
But, before you commit to buying a home in Mexico, consider renting for a year or staying in Airbnbs. Allow yourself some flexibility to see if the place you’ve dreamed of calling home is actually what you thought it would be.
Even if you’ve spent a lot of time vacationing in Mexico, living here is a whole other ball game.
During this trial run period, you should:
- Explore different neighborhoods
- Connect with other foreigners as well as locals
- Research the Mexican real estate market
- Make a list of priorities then reevaluate that list after six months
In my work helping people move to Mexico, I find that many Americans who were homeowners in the United States are reluctant to rent in Mexico. Some people see renting as a waste of money…
But, the only way it is worth it to buy a house in Mexico is to do so in a place that you are confident that you want to live.
Renting to start allows you to test out different options & settle into life in Mexico without making a big financial commitment right off the bat.
Many people find that they change a lot during their first six months in Mexico. Give yourself time to evolve.
Can you buy a house in Mexico without residency?
In the past, buying a home in Mexico as an American didn’t require you to have your Mexican residency.
However, in recent years, the federal government passed a law that Mexican nationals as well as foreigners living in Mexico must have an RFC (Registro Federal de Contribuyentes) for financial transactions ranging from opening a bank account and registering a vehicle in Mexico to purchasing a property.
The first step to getting an RFC (which is essentially a Mexican tax ID number) is applying for temporary or permanent residency in Mexico.
When you receive your temporary or permanent resident card, you will also get a CURP (Clave Única de de Registro Población). This unique ID number is similar to a Social Security number in the United States.
With your CURP and resident card, you can make an appointment at the nearest SAT office to apply for an RFC. It’s important you do this before you find a home you want to buy since it can take time to get an appointment.
Can a US citizen get a mortgage in Mexico?
Money lending, as we understand it in the United States, is relatively new in Mexico.
For this reason, interest rates are often very high–even more so for individuals with little to no credit history (you know, like a foreigner who just moved to Mexico).
Even if you’re okay with the high interest rates, applying for a mortgage in Mexico as a foreigner will require lots of paperwork (in Spanish) and a long processing time.
For these reasons, the overwhelming majority (nearly 100%) of sales in expat communities like Puerto Vallarta are cash sales.
Overview of the Buying Process in Mexico For Americans
This section will give you an idea of what to expect when purchasing a home in the “restricted zone” (beachfront property or home near the Mexican border).
In the following sections, I will go more into detail about what the “restricted zone” is exactly as well as how a fideicomiso works.
Reading this basic overview of the buying process before we zoom in on specifics will help you better understand what to expect:
- After scouring the Mexican real estate market, you fall in love with a house or condo and make an offer based on the sales price.
- You sign the initial sales agreement to purchase the property.
- Make a 40% deposit as a down payment via wire transfer (5-10% if the property is still being built).
- Continue to make payments as agreed upon in the sales contract.
- Once you make the final payment, the trust application for the fideicomiso gets underway.
- You and the seller pay your respective closing costs, taxes & fees.
- The public registry issues the final deed & the property is officially yours.
Even though it can take as long as three months to complete the process of registering a property in Mexico, in most cases, you can take possession of the property when the trust application for the fideicomiso is settled (step #5).
Things to Know About Buying a Home in Mexico as an American
Unlike Mexican citizens who are able to buy homes anywhere in Mexico, Americans and other foreigners must purchase property in highly desirable areas through a real estate trust with a Mexican bank.
Article 27 of the Mexican constitution refers to this highly desirable area as, essentially a restricted zone. This “restricted zone” covers areas within 50 km of the coast (31 miles) or 100 km from a border (62 miles).
When a foreign buyer wants to purchase property within a restricted area, they must do so using a Mexican bank trust called a fideicomiso.
What is a fideicomiso?
Established during the closing and title point of the sale, the fideicomiso is a renewable 50-year trust. This particular trust grants the title for a piece of the property to a Mexican bank which is acting as the trustee bank.
Despite not having the actual title, you don’t lose any authority. The trustee is obligated to follow the trust beneficiary’s instructions. What you (the foreigner owner) say goes.
If you’re worried about a catch, it’s just that there are extra fees. On average, it costs around $500-700 US annually to maintain a fideicomiso.
A common misconception about the fideicomiso is that it doesn’t allow the foreigner owner to pass the property down to their heirs. This is absolutely not the case.
The trust agreement lasts for 50 years, and after those 50 years, the owner or their heirs have the option to renew it. The fideicomiso is transferable, and one or more individuals can be co-owners.
If you’re considering owning multiple properties in Mexico, you only need a single fideicomiso. The trust permit costs between $500-1,000 US to set up.
With a fideicomiso, buying a home in Mexico as an American in a desirable area such as beachfront property is completely legal. You are free to live in your home (as well as sell, rent, expand or will it to your heirs) at your own discretion.
The best way to ensure you have all the necessary paperwork and documents to create a fideicomiso is to work with a notary public in Mexico (notario público). In Mexico, all real estate transactions involve a notario público.
Is a fideicomiso secure?
Understandably, you might feel hesitant about owning property without having the direct deed in hand.
It should give you peace of mind though that they only banks that are allowed to serve as fideicomiso trustees must have special authorization from the federal government.
In fact, fideicomisos are so secure that even foreigners purchasing property outside the restricted zone (for example, in the interior of Mexico) opt to own their property through a trust deed.
The advantages of owning property through a trust deed in Mexico include:
- Simple transfer of control of the property
- Option to list more than one person as beneficiary of the trust
- Option to list an heir
- Avoiding inheritance tax
- No time spent in Mexican courts
What is ejido land?
People sometimes make the mistake of calling desirable property near the Mexican coast or border “ejido land.” Let’s clear that up…
Ejido land is (or was) primarily used for agriculture. Think of it like plots for community farming. This land will often have communal buildings.
Once a zone is deemed ejido land, it maintains that distinction for life–even if the property is abandoned and farming activities no longer take place there.
Mexican law states that foreigners cannot own ejido land. You must be a Mexican citizen to purchase ejido land.
In order for a Mexican citizen to purchase ejido land, they must get the consent of the community that once farmed the area (for all intents and purposes, the community members “own” the land).
Failing to get the consent of all the community members could result in a messy legal battle down the road.
If a foreigner wishes to purchase ejido land, the first step is going through a privatization process that transfers ownership of the property to a Mexican citizen.
This privatization process can take a loooooong time, and even if you have the patience, there is no guarantee that it will be successful.
Before you get your heart set on purchasing a piece of land in Mexico, it’s important to work with a notary so they can investigate whether or not the land is ejido.
Should I form a Mexican corporation to buy property in Mexico?
If you’re interested in starting a business or using your Mexican property to earn income, then forming a corporation is the way to go.
Forming a corporation in Mexico is easy to do and relatively affordable (around $1,500 US). You will need at least two partners to do so, but contrary to popular belief, neither has to be Mexican.
Once you’ve formed a Mexican corporation, you can purchase property just a Mexican citizen would. Having the corporation will save you money on income tax, but there are some significant downsides as well:
- Annual accountant fees even if you don’t make any money
- All transactions must be done via check or wire transfer (no cash option)
- No way to avoid capital gains when its time to sell
If the motivation behind buying property in Mexico is to have a second home or move to Mexico full time, then it’s better to go the fideicomiso route. Forming a Mexican corporation is only a good idea if you want to start a business in Mexico.
Do you have to pay property taxes in Mexico?
Just like in the United States, if you own property in Mexico, you must pay property taxes.
When you acquire a property in Mexico, you must pay the acquisition tax which is 2% of the assessed value of the property at the time of purchase.
Each year, you’re responsible for annual property taxes known as predial. The annual property tax is based on the location and size of the property.
You must pay property taxes in Mexico every January. If you pay earlier, you can get a significant discount.
In Mexico, Servicio de Administración Tributaria (SAT) collects all federal taxes including property taxes. This IRS-equivalent is known in Mexico as the Hacienda.
Should you work with a real estate agent or lawyer in Mexico?
While there are certainly advantages of working with a real estate agent who knows the Mexican real estate market, a licensed Mexican attorney is the right choice for important steps such as:
- Drawing up the contrato de promesa when you make an offer on a property
- Setting aside money in escrow
- Write up the purchase sales agreement
- Drawing up your Mexican will
- Communicating with the Ministry of Foreign Affairs
In Mexico, a notary (notario publico) oversees real estate transactions. This individual is an experienced lawyer, and they are responsible for ensuring that the property’s title is accurately recorded into the public registry.
While you will need to pay notary fees based on the purchase price of the property, the Mexican government appoints the notary. In other words, it’s not someone you are choosing or hiring.
Some buyers elect to hire their own notary to serve as a personal lawyer charged with reviewing the sales contract and coordinating with the notary public. Just keep in mind that hiring your own lawyer could run you several thousand U.S. dollars, according to this Mexperience article.
Another option, if working with a real estate agent, is to ask them to look over the contract on your behalf.
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Can an American buy a house in Mexico?
The answer to this question is an unequivocal yes: An American CAN buy a house in Mexico.
US citizens and other foreign nationals interested in buying a home in Mexico should expect the buying process to be different in Mexico than it is in their home country.
The biggest difference is the requirement of a fideicomiso (bank trust) when purchasing beachfront property or property within a certain distance of Mexican national borders. Rather than direct ownership of property, the fideicomiso means that the bank has the title of the property.
Don’t worry though: Fideicomisos are very secure. You are still allowed to do with the property as you please including selling, renting or passing it down to your heirs.
If you have any questions about buying a home in Mexico as an American, please feel free to ask in the comments below.