Closing a real estate transaction in the country where you live can be complicated. Completing a real estate transaction in a foreign country can be even more complicated. You don't know what you don't know. That is why it is important to have a professional closing service help you complete your real estate transaction, to make sure the process goes as smoothly as possible and at an affordable rate.
It is important to factor in your closing costs when looking for a property. Closing costs in Mexico can range between 6%-8% or more of the purchase price.
Closing costs in Mexico are higher than in the United States but there is a reason for this. In the United States the closing costs are lower but the ongoing costs are higher because of their high property taxes. Closing in Mexico you will pay a transfer tax that is between 2% and 4% of the transfer price.
You might be saying to yourself "wow, why so much". Well there are many things that can affect your closing costs, from where the property is located, citizenship of the buyer, the bank used to set up the trust, if the trust is being transferred or a new trust is being set up, which Notario is being used and so on. It is important not only to use a professional closing company but to have a trained real estate agent help you negotiate your closing fees. A well trained real estate agent will know which fees are negotiable and which are a fixed cost.
Even though these fees may seem high, we have found that in the long run these fees add up to less money when you consider property taxes. In Mexico unlike the United States they charge most of their fees upfront and charge you very low property taxes. The way to look at it is you pay a little bit more up front so you don’t have to pay a lot over the long term. Unless you plan on flipping your home, you will come out with a huge saving in the long run.
Let’s break down some of the closing costs.
When a property is acquired in Mexico before a Notario, in order for them to be legally constituted they must meet with a series of permits and expenses, which are described as follows:
l. BANK TRUSTEE FEES: These are charged on a yearly basis and are paid upfront. They may vary according to the transaction, the property and the trustee; nonetheless most of them charge about $600 for properties priced under $700,000. For properties priced over that the fees will be more.
In Addition to this all the Trustees collect a fee for the Trust Acceptance, which is charged only once.
2. FOREIGN AFFAIRS PERMIT (SRE): This is a permit that the Notario or the Trustee process through their agents and it may cost up to $1,100.
3. NATIONAL FOREIGN INVESTMENTS REGISTRATION (RNIE): The Trustee has the obligation to process the registration of the Deed within a 30 day period after the granting and the costs will vary according to the Trustee.
4. NOTARIO FEES: These are regulated by a fee list authorized by the Notary Law valid in every State. Sample fee list is as follows:
From $1,000 up to $9,523 = 2% From $9,524 up to $1,9047 = 1.15%
From $19,048 up to $47,619 = .85% From $47,619 up to $71,428=.65%
from $71,429 up to $95,238 = .50% From $95,239 up to $476,190 =.25% from $476,191 and over =.20%.
(Note: The fees can be for a lesser amount but never for an amount over this fee list.)
5. PROPERTY ACQUISITION TAX: This is a State Tax. The Notario is responsible to charge and declare it without surcharges. It is around 2% based on the highest value of the previously authorized construction appraisal. It is important to mention that in order to calculate this tax you must apply a special procedure and the real closing costs cannot be determined on your own, a Notario must determine these costs.
6. PUBLIC REGISTRY RIGHTS: This permit can be processed through the Notario. Once the corresponding rights are paid, the Notario will be able to process the registration in the Local Public Registration Office where the property is located. The costs vary as stated by the law in every State.
7. NO LIENS CERTIFICATE
NO LIENS ON PROPERTY TAX; NO LIENS ON WATER OR MAINTENANCE FEES:
The Notario has the obligation to check that the subject property has no liens. The Notario will gather the certificates from the corresponding Government offices and from the Condominium administration. This charge is normally not more than $100.
8. OTHER CHARGES: This depends on the Notario and what costs he incurs.
9. TITLE INSURANCE: This varies according to the value of the transaction and the Insurance company but it should not exceed 0.5% - 0.7% of the price of the property.
10. ESCROW ACCOUNT: In order to manage the funds for the purchase of a property it is recommended to open an ESCROW ACCOUNT. The fees are different at each company and should be asked for in advance.
It is important to mention that some of the aforementioned expenses are mandatory and they must be made.
All of this information about closing costs is necessary to have an idea of what your closing costs may be. It is important that you get a GOOD FAITH ESTIMATE up front from your closing company and review it with your real estate agent.