As some U.S. lenders offer financing for property south of the border, potential purchases become more affordable
http://www.signonsandiego.com/uniontrib/20051002/news_1h02fi...
By Lori Weisberg
October 2, 2005
Thanks to soaring appreciation in housing values, Californians have been able to tap into their rising equity to help finance purchases of ocean-view
homes in Mexico, where conventional financing is either costly or unavailable.
The mushrooming growth along the Baja California coast, however, has persuaded some American lenders to head south, providing buyers with a way to
finance their purchases without having to dig deep into the equity in their homes.
While lending choices still remain limited, there is no question that the availability of U.S. financing will further open up the Mexican real estate
market to foreign buyers, say real estate professionals in Baja California.
"We have a boom right now, but with the American lenders, it will explode tenfold," enthused Rosarito real estate agent Gustavo Torres. "The people
who have the cash prefer to pay that way because they can get discounts, but not all buyers have that much cash."
Although there are Mexican lenders, their mortgage rates can be as high as 12 percent to 14 percent, roughly double the historically low rates now
available in the U.S. Some housing developers in the Rosarito-Ensenada corridor have been offering financing for their American buyers, but only for
10-to 15-year terms and with requirements for hefty down payments.
One of the key factors influencing the decision by lenders to provide financing in Mexico is the wider availability of title insurance, which they say
gives them a high level of assurance that ownership titles will be undisputed.
In fact, lenders say they will not lend on any developments or properties that do not have a title insurance commitment.
"We've been working on our Mexico product for over 18 months, and it's finally coming to fruition," said William Nassour, managing director of the
Beverly Hills-based CS Financial Corp. "Now that the big American title companies are down there, it just makes it that much safer. Before, we didn't
know if Jose down the street had a lien on the property."
Under CS Financial's lending program, borrowers can get 20-year loans covering anywhere from 50 percent to 80 percent of the purchase price. Mortgage
rates are fixed at just under 8 percent for four years and become adjustable after that, Nassour said. Loan origination fees will vary from 1 percent
to 2 percent of the loan amount. Buyers also must have relatively high credit scores to qualify, which is a common requirement among the U.S. lenders
doing business in Mexico.
Eventually, CS Financial hopes to unveil additional loan programs, including interest-only loans and 30-year fixed-rate mortgages.
While CS Financial is focusing on major destination resorts such as Cabo San Lucas and Puerto Vallarta, the company plans to expand into the Rosarito
and Ensenada areas later this year, Nassour noted.
Most American lenders in Mexico are holding onto the loans they make, but Nassour said he is hoping a robust secondary market will emerge, allowing
lenders to sell off their loans to global portfolios. In CS financial's case, the company is currently selling some of its loans to GE Consumer
Finance.
Silvergate Bank, a La Jolla lender, launched its lending program in Mexico in June after researching the real estate market and learning how little
financing was available there for Americans. The bank currently is focusing its lending efforts in the Los Cabos area because the company feels it is
a more established market, said managing director Derek Eisele.
The loans, which generally require a 50 percent down payment, come with variable interest rates in the high 8 percent range and will adjust every six
months, he said.
Eisele and other lenders cautioned that when purchasing properties in Mexico, buyers should put their down payments into an escrow account rather than
turning the money over to the developer. It is an added precaution should the housing project encounter problems and the purchased unit cannot be
completed, lenders say.
"It's always better to have a U.S. escrow company hold those funds rather than send the money directly to the real estate developer," said Eisele. "If
the developer doesn't want to do that, we'd tell people to proceed at their own risk."
What has often occurred with property sales in the Baja California area is developers will take deposits from buyers for still unbuilt units and use
the cash to help finance construction, explained Nassour. That practice is driven, in part, by the difficulties developers face in getting affordable
financing for their projects.
"The new generation of builders is stepping away from using your money to build the project," Nassour said.
Many of the projects Torres is selling use in-house financing plans, including a 10-year loan at 9 percent, with 30 percent down. If buyers are
willing to do all-cash deals, they can qualify for discounted prices that vary with the size of the down payment, Torres explained.
Developer Jack Coskey, who is building 240 beachfront units north of Rosarito Beach, does his own financing for buyers, offering 15-year loans at 8
percent, with 50 percent down. Although the deposits are placed in an escrow account with Stewart Title, the money is used to cover construction
costs, Coskey said.
"Here it's too expensive to borrow, so we use the money to build," explained Coskey, a native of Las Vegas who still owns a spa there. "We have a
third-party company that disburses the construction money. We do it as safely as possible. The money isn't going to go anywhere but in this project."
Both Coskey and Torres noted that they recently have been meeting with U.S. lenders interested in doing business in Mexico because of the surge in
American buyers.
One of the U.S. lenders with the longest track record in the Mexican market is Collateral International LLC, which has been making loans there for 10
years. Collateral International offers various loan options, with down payments varying from 20 percent to 40 percent. Terms for fixed-rate mortgages
range from 10 to 20 years, and interest rates depend on the buyer's credit score, the amount of the loan and the size of the down payment.
"It's very easy to talk about getting into the Mexico lending market, but only a handful of lenders have actually gotten both their feet planted into
the market and are actually doing business," said George Ojeda, vice president of Collateral International. "It's a tremendous process to close a
loan. It's not for the faint of heart."
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