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Baja Home Loans For Americans

U.S. lenders and familiar mortgages make buying easier in Mexico

A careful observer of today's weekend Baja crowds might note that among the typical turistas are some who seem to know their way around. That's because many own a retirement or second home. There are now full-or-part-time residents joining the nearly 200,000 other American expatriates in Baja California. Those numbers are swelling as fast as San Diego real estate prices the last five years, and show no signs of slowing now that U.S. lenders are getting into the Baja mortgage game.

When prices began to skyrocket in the Southern California market, so did the phenomenal increase in home/condo sales along the Baja coast from Tijuana to Ensenada. It seemed the San Diego home seller who cashed in found that buying a Baja coastal property with the profits was a good investment. Houses at the beginning of the cycle were priced at 30 percent to 40 percent of a comparable unit in the San Diego region.

We've long prescribed caution in making such purchases, dedicating columns to what to do, and not to do. Buyers, we said, should be wary of putting deposits on homes not yet built and demand title insurance coverage against defects on title, especially since U.S. title companies already are offering Mexican property title policies.

Drives along the Baja coastal scenic highway are to some degree marred by the profusion of billboards advertising real estate projects. Most proclaim Title Insurance Available or already obtained by the developer. Most reputable real estate brokers in the region no longer represent sellers whose project or individual houses cannot or will not offer title insurance. This evolution has greatly increased confidence, and thus sales all along the coast.

Coastal property values and prices have risen significantly, though Baja property is still a bargain compared to coastal San Diego or points north. Those who bought two years ago have seen their investment increase by 50 percent to 60 percent; the one-year increase is between 20 percent and 30 percent.

The higher prices coupled with the slowdown of property value escalation in Southern California could easily cause a slowdown in the Baja coast were it not for the newest wrinkle U.S. financial institutions offering home mortgages to U.S. citizens buying in Baja.

Historically, U.S. buyers of Baja property paid the purchase amount in one, two or three installments. A few Mexican developers offered some financing programs with short terms and high interest rates. To obtain financing from U.S. sources, buyers had to provide U.S. assets for collateral, such as equity in a U.S. residence plus their own good credit rating and personal guarantee. Not anymore. Today buyers are judged on the value of the property, their U.S. credit worthiness and income.

What is now becoming plentiful in Baja is the U.S. style mortgage broker, quick to pounce on the new opportunity. And that is nothing short of Yankee-style opportunism.

But here again, care must be exercised. Mortgage brokers are just what the name implies brokers. They are not bankers, they are not lenders. They beat the bushes for prospects, take the application and submit to a lender that in turn does the underwriting and either approves or disapproves the loan.

To this column's knowledge, CS Financial is the only independent private mortgage banking firm soliciting, accepting and underwriting mortgage applications and funding, selling the original mortgage to such institutions as GE Capital, one of its primary sources.

Of primary importance to potential buyers are two things:

• Do not put a deposit on a home before applying for a mortgage.
• Do not pay mortgage brokers upfront fees. Remember that the broker cannot commit the financial institution to funding the loan.

(Next month: the actual process and loan underwriting considerations. How U.S. financial institutions protect themselves from defaults, buyer's responsibilities and seller's responsibilities.)

Patrick Osio Jr. can be reached at patrick@transbordercommunications.com