For most of us, a home is the biggest purchase we’ll make in our lifetime—one that carries a lot of emotional and financial value. Having a detailed budget is the first step of the process. Next comes working with a lender to secure financing. Here are some key factors you have to consider.
Here the vocabulary that you will find when comparing options:
Prequalified vs. Preapproved
Think of a prequalification as a quick snapshot of qualifications to take out a mortgage loan. The prequalification takes into account the buyer’s credit score and self-reported income, and it gives you a ballpark idea of how much house is affordable. Remember, it’s an approximation, not a promise.
A preapproval is more complex. Most banks will want a loan application and documentation of income, assets, and debts, along with a full credit report—not just a credit score. With a preapproval, a conditional commitment in writing from the bank confirms approval for a specific loan amount. In competitive housing markets, a preapproval provides an edge over other buyers, and it could be required to make an offer.
Appraisals
An appraisal report provides an approximate value of the home. Appraisals are conducted by experts who are licensed or certified by the state. Appraisers look at several factors, such as the size and condition of the home, comparable sales in the neighborhood, and other features that add to or detract from the value of the property. Lenders require an appraisal to determine the property’s value and the maximum possible loan amount.
Closing costs
These are fees that are paid at the closing of a real estate transaction. Closing costs have to be paid by buyers and sellers (or a combination of both) and include notary fees, bank trust fees, taxes & duties, administrative, and application fees. If you want to learn more about closing costs, click here
Mexican Bank Trust (Fideicomiso)
The Mexican Government issues a permit to the Mexican bank of your choice, allowing the bank to hold title to the property, while the purchaser holds title to the beneficiary rights (almost all Mexican banks are owned by or in partnership with American or European Banks). The bank acts as the Trustee and you become the Beneficiary of the Trust. If you want to learn more about Mexican Bank Trust, click here
Fortunately for foreign buyers there are several options to obtain a mortgage loan, here we mention two:
1.- Financing in Mexico in MXN with a Mexican bank
Foreigners can secure credit with a Mexican bank of up to 70% of the property’s value appraisal. It follows the same steps to get a mortgage as a Mexican citizen. Interest rates will be higher in Mexico than the US and Canada, however, there are several pros of financing your property in Mexico in MXN.
This is great news for US, Canadian & European home buyers looking to close their mortgage denominated in Pesos. This means effectively less USD needed to pay for your MXP Peso denominated loan over time.
Exchange rate: $21.65 pesos [Dec 7th, 2021]
Over the last 10 years Mexican Peso (MXP) has slipped 102% vs US Dollar (USD)
2008 | 2021 |
$1 million Pesos = $91,478 USD | $1 million Pesos = $46,178 USD |
Financing is easy and mirrors similar process of those in the United States and Canada and most European countries:
Full legal certainty from the bank you are getting the mortgage with.
Securing a loan in Mexico will not impact your credit score back home.
The exchange rate will, most likely, be in your favor and you can derive income in US dollars from buying a property that clients rent in USD, whereas your mortgage is in Mexican pesos.
Having access to extra cash you didn’t know was available to you.
All deals close at a top bank location with a Notary Public licensed by each state.
Deals close in your trust name that evidence you own 100% of all rights related to the property.
In this case an escrow account will not be required
Given this, with this scheme you may apply for these benefits with the same characteristics requested of Mexicans. As long as the following requirements are followed:
Down payment is paid to the builder or seller. --The appraisal fee will be paid upfront.
Set up bank account at closing bank depending on your unique profile
700 Equifax Credit Score
30% Down due at contract
7%-10% closing costs due at closing (so down payment + closing cost = 40% approximately)
5yr, 7yr, 10yr, 15yr or 20yr. terms available
Fixed rate “estimated” between 8.50% and 9.75% depending on your profile
40% debt to income ratio
2yrs Tax Returns - mortgage company uses GROSS income before expenses
Whosever name is on the most recent tax return must be on the loan
Mortgage does not report on a U.S. Canadian or European Credit Report (depending on the lender)
No prepayment penalties (depending on the bank).
2.- Financing in the US or Canada in USD
There have been a lot of people who have used this option. Here is what we can learn from them:
Refinance a new loan (Cash out/Refinance): You can secure around 4.5% fixed interest rate, for example, which is the lowest interest option we have found at present.
Home Equity Loan: If you own a property, you most likely have equity in your home. You can tap into it. It is a simple and easy process, and you can get something around a 6% fixed interest rate.
Home Equity Line of Credit (HELOC): This is a more flexible option where you can take money out as you need it. The interest rate might be variable and, evidently, it will all depend on your equity and your credit score.
Requirements for my mortgage loan in E.U. or Canada is the question should you ask when you are starting the process of buying our new house or apartment and it is the first cause of uncertainty in the process that, although it is true, is not simple, it is not complex either as long as we are well advised from the beginning by a Mortgage Estate Advisor.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.
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