The (Super) Power Of Financing In Foreign Homeownership
As the CEO of MoXi, a company on a mission to unlock the world’s access to border-less homeownership, this topic is near and dear to my heart. While MoXi is focused on the global opportunity in this space, today we’ll focus in on a particular market, Mexico, where MoXi completed its initial pilot, and the home to many of our valued team members.
Mexico is an incredible country, full of culture, beauty, and warmth – both in the proverbial and literal sense. Mexico’s year-round enjoyable weather, sandy beaches and crystal-clear blue water, favorable cost of living, and proximity to much of the United States attracts upwards of 20 million visitors annually. Many of those visitors end up staying – and returning – in droves. “Staying,” for some, means permanent relocation and officially carrying the title of ‘expat,’ while for others it means regular visits, family reunions, and/or a powerful residential rental income value proposition.
In the early 2000s, US capital markets were flush with cash, loans were easy to come by, and foreigner interest in homeownership across Mexico was just heating up. Global financial institutions met the growing demand by offering 15-year fixed rate mortgages to foreigners buying or refinancing their luxury vacation homes. These liquidity solutions quickly vanished in the wake of the 2008 financial crisis, but foreigner demand for Mexico real estate seemingly never waned.
After the exit of Global bank financing for foreigners in Mexico (unlikely to return for a whole host of reasons – we can discuss this in another article), few solutions remained in a market that desperately sought a solution to continue to sell luxury real estate to a growing contingent of foreign buyers that became increasingly obsessed with owning a piece of paradise. Mortgage brokers sought money lines from Mexican banks who offered credit on terms that foreigners considered exotic.
Real estate brokers, agents and developers are a bright and resourceful bunch, and so this brought on creative seller and developer financing offerings and a “pay cash” movement. Such a movement meant something very different to Americans than it did to their real estate agent. In reality, foreign buyers that “paid cash” for their MX real estate borrowed heavily against 401Ks and liquidated IRAs – foregoing portfolio appreciation as the US economy recovered, and as the US real estate market recovered, signed for variable rate HELOCs and cash-out refinanced property in the United States to send money across the border. But the problem remained: where is the reasonable, secure, and reliable foreigner financing?
A few years before COVID-19 entered our lives, a conglomerate of smart people recognized the gap in the marketplace and got started in solving this emerging market problem: the world’s people no longer wanted citizenship guardrails around their real estate purchases and holdings. Technology, air travel and the availability of information transformed the perceived size of the world and the world’s people want to not just explore it for a week at a resort, but experience it, live it, and know it.
“Pay cash,” is a limitation in every sense of the word, and excludes creditworthy people. As it relates to Mexico specifically, the market was ripe for change.
MoXi entered the market in 2017 originally as a company named Global Mortgage Mexico that sought to make non-exotic 15 year fully amortized mortgage loans at 9.99% interest, with 50% down, in US dollars, to foreigners secured by trust rights on real property in Mexico. The Global Mortgage team worked through the execution of such mortgage originations with partners on the ground in select beach markets across the country. But the world’s financial system and investor appetites had materially changed since the early 2000s when the global banks quickly entered Mexico and exited only a few years later.
The best way to illustrate this is to think about the process of getting a mortgage in the United States prior to 2007 and then after 2008. Getting a Mortgage in a foreign country was no exception. An entirely new execution was required to bring investor capital from the US and deploy it into Mexico real estate markets. A trail needed to be blazed again.
The Global Mortgage team faced healthy skepticism from fiduciary banks, real estate agents, developers, attorneys, and more – thanks in part to those that had come and gone overnight in the past.
This is not an article about Global Mortgage Mexico’s journey into becoming a powerhouse international finance company, now named MoXi. This is about financing options for foreigners seeking mortgages (purchase money, refinance of an existing lien, or cash-out refinance) in Mexico. Here goes:
Today in 2022, MoXi, fresh off a new $300M capital infusion, and through its proprietary tech stack, offers secure USD originated and serviced fixed-rate 25-year mortgages to US Citizens across the country of Mexico. MoXi’s offering has been significantly enhanced since its predecessor’s early days as Global Mortgage, and today is the only finance company to offer FIXED rate, long-term $USD financing to US Citizens at attractive interest rates and with as little as 35% down. Besides the product offering itself, MoXi, through its expert team across multiple countries and its proprietary technology, offers the ability to close ‘faster than cash.’
But what clients find most valuable about MoXi is the peace of mind that MoXi’s proprietary process offers: security with respect to property diligence and legal property transfer and MoXi’s organizational structure as a regulated and audited non-bank financial institution.
MoXi reports to several regulatory agencies in Mexico and in the United States - and offers a unique value proposition whereby foreign clients can:
(i) safely and securely purchase and refinance property in Mexico that has been diligenced in a manner consistent with US property transactions
(ii) avoid any foreign currency risk by borrowing and re-paying in US dollars despite security for the loan being on foreign property
(iii) take advantage of possible mortgage interest tax deductions because mortgage interest is reported in the US; (iv) enjoy the peace of mind – especially in a rising rate environment - of fixed rate, long-term financing with no prepayment penalty. MoXi’s organizational structure (a thoughtful group of 7 different entities working together across both countries) allows clients to avoid paying 16% IVA tax on MoXi fees, costs, and charges – another unique value proposition in the marketplace.
MoXi is encouraged (rather than concerned) by others coming to this space, as liquidity options for current and prospective foreign property owners bring value to all. MX banks via mortgage brokers still offer foreigners credit on what many consider to be exotic terms (teaser start rates with payment increases every 6 or 12 months resulting in fully-indexed APRs akin to credit card interest rates). One Mexican bank recently launched a foreign financing program for purchases transactions only.
While the offering is limited to 15 year terms, requires life insurance, required that hazard insurance be purchased through the bank’s insurance brokerage, doesn’t feature mortgage interest reporting in the US or 16% IVA tax relief, and only offers adjustable interest rates tied to LIBOR or the MX TIIE index, the global call from consumers and property investors is being heard – and we’re thrilled to see newcomers on the scene.
If you’ve found this article because you are searching for mortgage options as a foreigner in Mexico, know that the landscape has changed for the better and continues to evolve each day!
Contact the MoXi team today and explore your options!
Did you know that MoXi funds & services loans in USD, is regulated and audited in the US & Mexico, and ensures compliance throughout the term of your loan?