Credit, Loans & Mortgages In Mexico!
Hi, I'm Alex Koper, CEO of MoXi. Really excited to be here today with Chris Childress, our Head of Retail Sales. And we're going to talk today about a very exciting topic and that is mortgages in Mexico. Chris, thanks so much for being here today.
And I know, Chris, you have the opportunity to lead a large chunk of people at MoXi on our sales and mortgage advisor team, so you are an expert on customers and real estate agents who might be watching this wondering about getting a mortgage in Mexico. What's your favorite part about your work each day?
Well, my favorite part about what I do here at MoXi is the fact that we're changing an industry here in Mexico. When we first started this just a few short years ago, there was zero legitimate financing for US citizens in Mexico. When we came here, we realized it was just a tremendous expat population, and I was like, "Man, are all these people paying cash? How are they obtaining that?" After having a long time in the industry, I was like, "How is this industry surviving and growing at the pace that it is without financing? And if there was financing, what could we do?"
In the last several years, we've really just changed the landscape and each day we're just forging new paths and creating new opportunities for US citizens finance real estate in Mexico. And every day the product and program changes and improves to make it even better and even more accessible. And every day when we finish the day, we've taken another step towards just really changing this industry. It's exciting.
Absolutely. You mentioned a couple of key things in there, I want to ask you about. You mentioned product and program changes, and Chris, you've been part of the MoXi team since the very, very beginning when we offered really one product, 15 year fix, 10% interest rate, 50% down. Talk about some of the changes MoXi's made from a product and program standpoint in the last couple of years, and even just in the last couple of months?
Man, I'm excited too, because this is where it really gets exciting. You're right, when we started this program many years back, it was very, very vanilla and not very easy to qualify for. It was a 15-year fix, it was a flat, basically a 9.9% interest rate. You had to have very low debt to income ratio, meaning you had to make a lot of money to qualify, high credit score requirements, so forth, and so on. It wasn't really an attractive product, but it was a product that was needed, so it got a lot of attention and people were accepting that. But again, it was 15-year fixed, 10%. In a market where US citizens at the time were seeing mortgages in the twos and threes in a lot of different options as far as, [inaudible 00:02:53], periods.
First, we had to create the product and get something out there, but the changes that we've seen now is, the more loans that we've closed, the better this product performs, the more the investors are satisfied with the return they're getting, then obviously the more readily available funds become, therefore driving down our cost and the flexibility of the programs we can create. I'm terribly excited to say that now, we offer up to 30-year fixed rate financing for US citizens. Interest rates range all across the board. Interest rates are driven by credit score, loan amount, loan to value, the same things that they're going to affect interest rates in the United States are the same things here. But now, we've got an offering that's grown to such to where we've got interest rates that range based on today's pricings from anywhere in the sevens to the tens, just really depending on the individual borrower. We've got a much more robust program that will better suit a much larger population or amount of the population seeking to do business here. Terribly, terribly exciting.
That's awesome. It's really fun when you have a chance to look back on the history of MoXi and where we started and where we are today. It's exciting to be able to bring all this new stuff to market. One of the questions we often get is about restricted zone versus non-restricted zone. How does that impact MoXi's financing, if at all?
Well, it doesn't affect the way that we structure our loan because MoXi, the way that we've got our legal document structure, we require a Fideicomiso and for all loans. That's what's approved by the Regulatory Commission of Mexico that we report to, to make sure we're in compliance. That's also what's approved by our investors in the United States. Regardless of whether or not we're in a restricted zone, MoXi will use the Fideicomiso Trust Document in order to close the transaction. To give a little more clarity though on exactly what that is, the restricted zone in Mexico is basically an area that's been earmarked or carved out, if you will, in the Mexican Constitution as special property. And frankly, it's the good stuff. It's 50 kilometers from the border to the United States or from a border anywhere in Mexico, it's a 100 kilometers from a coastline, so that's going to be all your resort, beautiful beach property and all that kind of stuff.
And essentially what the Mexican Constitution defines is that, in order to own that real estate, the way that we're used to owning real estate in the United States in a fee simple titled type deal, then you have to be a Mexican national or a Mexican entity. And what that did was, create a restriction for foreigners investing in that area without special permissions from the Mexican government. What they did in the same action was establish a path for ownership for US citizens, for foreigners, and it's called the Fideicomiso, and it's basically a trust document that names a Mexican bank as the trustee, if you will, and then names the borrower, the buyer beneficiary, and so they've got full right to buy, sell, improve, control that property. But anyway, it's done through a trust document. Again, that's what the protected zones are all about or the restricted zones are all about here in Mexico.
And so foreigners that are buying property either in a restricted zone like an area like Los Cabos where you live, Puerto Vallarta, Punta Mita, Riviera Nayarit, anywhere near the ocean or near a border or foreigners purchasing property in Mexico City or San Miguel de Allende for example, areas where we do loans, they're allowed to, and MoXi has a product program and legal structure in order to be able to help them own securely in those areas and profit from the sale, improve the property, so on and so forth, transfer it, [inaudible 00:06:47], down the line to their heirs, all of that. And would you say that that is a secure method of ownership in your experience?
Absolutely. This is the way that any foreigner will buy into Mexico through the Fideicomiso. It's done every single day, it's been done for years and years and years that way, and has proven to be a very secure and safe way of owning real estate.
Awesome. A typical foreigner or any MoXi customer that's purchasing property or refinancing property in Mexico, if they're working with MoXi, do they have to go and start a Fideicomiso, or how does that work?
Well, so if you're working with MoXi, no. Part of the process is that MoXi has partnered up with a legal team that acts as a liaison on our behalf. And what they do is, they will work directly with the sellers, with the notarios, with the federal government here to get the permits required. And then that team will carry out the process of establishing the Fideicomiso, making sure that all the title documents where it needs to be so that when we're set and done and we close on the loan and MoXi funds the loan for you, you are buying, I'm sorry, the borrowers and in fact buying what they agreed to buy, title is being legally transferred to them. And then of course, MoXi as a lender, the liens and whatnot, the mortgages are properly recorded in a way that's legal here in Mexico.
That's such a great point. I think the peace of mind in security that MoXi offers with respect to legal property transfer is paramount. I know people really appreciate that, our clients really appreciate that. If you were a potential MoXi customer, could you talk about a couple of things, maybe credit score, reserves, income, a couple of things for people to just keep in mind to determine whether or not they're good fit for MoXi program right now?
Sure. In order to qualify for MoXi loan, the general parameters of the product are, our loan amounts will go from a minimum of 250,000 US dollars, our maximum loan amount per our guidelines is 2.5 million US dollars, our loan program will go up to a 65% loan to value at this time. And what that means is that the borrower would be required to put down a minimum of a 35% down payment. Minimum credit score per policy is a 700 credit score, so in order to qualify, the middle credit score of our primary wage earner on the application has to be at least a 700 FICO. Now, there are some restrictions when you get south of a 760 credit score and there's another adjustment somewhere around the 720 mark. And what that's going to affect is the allowable debt to income ratio, which is simply a measure of how much you spend each month versus how much you make, and then also the allowable loan to value.
So the super lower or not super low credit scores, but the lower credit scores of those buckets, say 720 and below, for example, would be a maximum of 50% loan to value versus 65. Program guidelines are pretty vanilla, like I said, it's a minimum of 250,000, a max of 2.5 million, a minimum of 700 credit score up to a 65% loan to value. However, there will be some adjustments based on region, credit score and the adjustments are going to be, allowable debt to income ratio like we discussed a moment ago, and then also max loan to value available for that borrower in that region.
Summing it all up, you have to have decent credit, you have to be a US citizen or a US permanent resident to qualify for MoXi financing, employed or have some sort of source of income, self-employed is fine and have filed your last two years of taxes in the United States, have those ready or if they're on extension the prior two years, right?
Okay, cool. Just summing it up there.
It's going to be very similar from a credit perspective to applying for a mortgage in the United States. The documents and the calculations and the way that we're going to look at your income and your assets and down payment and all that stuff, from a credit perspective is going to be very, very similar to what you're accustomed to or what the bar is accustomed to in the United States.
Awesome. What would your advice be for someone watching this video that's either already owns a home in Mexico, they are a US citizen, they maybe want to refinance or cash out refinance, or they're maybe thinking about buying? What would your advice be as far as reaching out to MoXi?
Yeah. First and foremost I'd say get organized and get educated. While MoXi works very hard to make this process and experience very similar to what we're accustomed to in the United States, there are some inherent differences. It's important to make sure you're clear on what we're working with, clear on what you're trying to achieve here. What I would recommend first and foremost, is fill out the form. Let's get connected first, fill out the form to contact MoXi. Here's what's going to happen when you do, you're going to first get an email from our team, it's going to be an introductory overview email with some key links with important information on who we are, what the process looks like, some pricing scenarios with regard to how we calculate rates, all that good stuff, what it costs to do a deal down in Mexico.
And then as importantly, you're going to receive an invitation to join us for a complimentary, no obligation discovery session to really dive deep and answer any questions you have about the process. We want to make sure that you are well-informed and we are fully transparent. That way you're able to make it, or I'm sorry, the borrower, is able to make an informed decision. That's really going to be the first thing is, let's get connected, let's spend a few minutes on the phone together, find out if we're a good match, and then from there we'll guide you along the way and help make that international homeownership dream come true.
Awesome. Appreciate that. And so let's say somebody is just maybe in their infancy stages, so they're not quite ready to have a call. What tools does MoXi have available to calculate potential Mexico mortgage payment or think about amount of cash to close?
Yeah. I'm glad you asked. We've got an exciting new tool that was recently built into our website, and what that is a cash to close and a payment calculator, that's just right there on the website. You can get in and play with some numbers, get some ideas of what you're looking at, and it'll give you a pretty good ballpark of what you're looking at. And then you can take that information into your discovery session when you are ready and really drill down on those figures to get a more exact figure.
Awesome. That's great. Okay. Another common question we get all the time is new construction. I know personally, but I also know that many of our viewers have this question regularly. Buying new construction in Mexico is very different than buying new construction in the US, so how does it work in general, maybe for those that are just thinking about that and then also how does it work as it relates to getting MoXi financing?
Okay. In general, new construction, there's a lot of new development. There's a ton of interest in just a mass exodus to Mexico, if you will. Anywhere you drive, whether you're in PV or over here in Los Cabos, there is construction and new builds going on everywhere. That's a big piece of the market that's, [inaudible 00:14:46]. What we've seen that's different here is one, the process to get things done. In order to execute a fully legal transfer of that property once that construction's done, that goes beyond just finishing the project or just completing the project, the walls are up, the windows are up, it's all beautiful and painted and looks good, and then you get a certificate of occupancy or something like that in the United States.
It's a little bit more detailed than that or quite a bit more detailed than that here, the builders, once they finish construction, there's a series of documents that have to be recorded and provided to the government in order for them to basically be able to legally transfer that property. There's a document called a Manifestation, which is a summary of all the work and costs associated with building a condo regime in an environment where you have an homeowner association. All these documents have to be finalized, approved, and recorded with the government in order to execute that legal transfer. Make sure that whenever you're moving through that process, you're working with a builder who's got their ducks in a row and got things in order.
Also, the way that new construction works here from a funding perspective, and this is not even taken into account MoXi your financing, but from a funding perspective is very different than what it is in the United States. In the United States, you go to a new builder, you find a model home center they've got, you pick out a floor plan, [inaudible 00:16:09], you like what's going on, you're going to make an earnest money deposit just like you would on a resale in the United States, where you'll deposit into escrow, there's 8 or $10,000 or 15 or whatever the dollar amount might be that you've agreed upon in your contract, but that money's then deposited into escrow and then held. And then once the home is complete and everything's done from a titling perspective, then they're ready to transfer and then you'll fund the rest of the project.
But generally, your initial deposit is fractional, very small relative to the big picture and the big sales price. Whereas in Mexico, it's totally different. Generally speaking, you find a new build project or a pre-construction project that you like, you'll pick the unit, you'll pick the decor, you'll get everything going. And then generally, just the initial down payment's going to be pretty juicy, you're looking at 30, 40, 50% down payment just to get things started. And then a lot of these builders will have a draw or a payment schedule during the construction progress, where they get to a certain point a few months down the road, and now you've got to put another 20% and another 20%, however the numbers work out to where when you get down to the last piece, they're looking for maybe a 10% final payout when they hand the keys over. And also a lot of new construction differentiates delivery from legal transfer, so you want to read your contracts very closely. Because in a lot of these cases, they'll say, "Hey, final funding or final payment is due when we deliver."
And a lot of cases that delivery is being defined as paints on the walls, the tile is down and the water works, "Here's your keys, you fund me now and then we'll finish the legal transfer part later." But delivery is, "I'm delivering the keys, you're going to deliver me the cash, and you get to go and hang out and enjoy your new place while we work out the final details." That's commonly referred to as a soft closing, pre-closing type thing. That's not something that MoXi can fund into, and we always recommend to know what you're getting into if you're participating in a program like that.
Generally what MoXi likes to do in a situation with pre-construction, we do not offer, if we're involved in the financing of course, we don't have a program right now for construction financing, meaning, we don't have a stage funding where we can issue draws through the construction phase and fund out the builder during the process. We will close and fund the deal when the property and the transaction is ready for final legal transfer, that's when the property is transferred to the new buyer's name. And then that's also when we're able to legally and securely file our lien on the property. Everything's done properly so that we know that we're financing what we agreed to finance and the borrower has now obtained the property that they agreed to buy. That's really the big key difference there.
We don't offer a stage funding. What we will do, and we work with a lot of customers who have come in, they've gone through our discovery session, they've gone through the application process, they've received their loan approval, they've gone through the pre-approval process with a fully underwritten loan approval. And then what we'll do is basically underwrite or maintain that approval alongside the construction process. And then that way when we approach the final completion, when we're actually getting ready for actual delivery and full legal transfer, MoXi can be prepared to back fund or to fund that final portion to the builder at closing. And then we will take into account any deposits, any credits, earnest money deposits and all that stuff. We'll do a final reconciliation, like a checkbook of debits and credits at the end of the process. And then we'll obviously credit back the borrower, any overpayment that they paid to the builder during that funding process, so get the part right, if you will.
Great points. And I think, to put it really crisply and candidly, sometimes we see these soft closes, which I personally wouldn't do, but where I've paid for this property in its entirety and I've got the keys and I can sleep there, but I don't actually own it at all in the eyes of Mexican law. MoXi doesn't participate in soft closes at all, but it is somewhat of a commonplace. I think that's really good advice though.
Yeah. Good advice just for folks to understand if they want to do that, just do it with eyes wide open. And sometimes the developer ends up recording all those documents required for a legal closing in Mexico, maybe it's a year after delivery, and MoXi's happy to help at that time. And to your point, if there's an overage, the amount already paid to the developer plus the loan amount less the total consideration or the property purchase price, the client gets the cash back, so almost like a cash-out purchase transaction in a way.
It's like a construction loan, except the borrower in that instance is their own interim lender.
Yeah, good way to think about it.
We do the takeout, so they'll fund alone the process and then at the end we get the part right.
Yeah. Cool. It's just an interesting... New construction development in Mexico is so different than it is in the US. Part of it is, you're expected to finance the developer's construction for you along the way with progress payments. Part of it is that, potentially you even get your keys and move in before you own it. And so definitely some risk in there for clients that are not accustomed to that kind of situation to be aware of. MoXi certainly helps clients all the time with navigating those waters, I think is probably the best way to say it. And that's a key component, right?
Coming back to the restricted zones and non-restricted zones, where does MoXi lend in Mexico? What are the markets in which we make loans to foreigners?
Well, legally, according to our registration and our licensing here in Mexico, we can lend anywhere in Mexico. We started in Los Cabos. We wanted to get a foothold here and cut our teeth, if you will, and try to get efficient and proficient before taking it out to the rest of the market. But we are now growing into all of Mexico, we've closed loans in many different areas, and legally, like I said, we're permitted to do business anywhere. Right now, we're heavily focused in obviously the Los Cabos, we're over in the Yucatan, we're in Puerto Vallarta. We've done some CDMX stuff. We've done a lot of business over in San Miguel de Allende, so we can really go anywhere in the country.
Yeah. Good point. We get that question a lot, but I don't think we ever give that answer so broadly. But yeah, we can lend anywhere in Mexico, as long as you meet the program guidelines, which are again, minimum $250,000 loan size, so you're transacting on a property with a value of at least 350 US dollars, all the way up to two and a half million loan size. Theoretically, no cap on the upper limit of the property value. US citizen only, credit score 700 plus, or US permanent resident, I should say, US citizen or US permanent resident only, credit score 700 plus. And then a legal closing in the eyes of Mexican law is required for MoXi to fund.
Great points. Thank you, Chris. I think that covers some of our frequently asked questions for now, but I super appreciate you being here. Thanks for all the great work that you do with the MoXi team and for our customers and real estate agent partners. And look forward to seeing you again soon.
Yeah, thank you so much. It's my pleasure.