Closing a real estate transaction in any country can be complicated, closing a real estate transaction in a foreign country, such as Mexico, can be even more complicated and intimidating. 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.
Closing costs must be considered in addition to your downpayment to determine the total funds required to close. 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 transferred 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. Keep in mind that these costs will vary depending on different factors including the exchange rate of the day of closing.
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:
1. 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 bank; nonetheless most of them charge around $600 for properties priced under $700,000. For properties priced over that the fees will increase accordingly. In Addition to this, all the trustee banks collect the following:
Trust Acceptance Fee – This is a one-time initial fee to set up your Trust. This is a one-time charge and the fee varies by banks. For example, a bank could charge $500 USD + IVA (16% tax) so the fee would be $580.
Trust First Year Fee – There is an annual fee charged by the bank to maintain the Fideicomiso. This is paid in advance, so you have to pay for your first year at closing.
2. FOREIGN AFFAIRS PERMIT:
(SRE - Secretaría de Relaciones Exteriores)
This is a permit that the Notario or the Trustee Bank process through the closing agent and it may cost around $1,100 USD.
3. NATIONAL FOREIGN INVESTMENTS REGISTRATION:
(RNIE - Registro Nacional de Inversiones Extranjeras)
The Trustee Bank has the obligation to register the Deed within a 30 day period after the granting. The costs will vary depending on the Bank and the fee will range from $350 up to $800 Dollars.
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 $1,600 up to $6,492 = 2.75%
- From $6,493 up to $16,230 = 2.00%
- From $16,231 up to $32,462 = 1.50%
- From $32,463 up to $162,311= 0.95%
- from $162,312 up to $324,622 = 0.55%
- From $324,623 and over = 0.35%
(Note: The fees can be for a lesser amount but never for an amount over this fee list.)
5. PROPERTY ACQUISITION TAX:
(ISABI - Impuesto Sobre Adquisición de Bienes Inmuebles)
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:
(RPPC - Registro Público de la Propiedad y Comercio)
This permit can be processed through the Notario and are based on the sales price of your property. 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:
(Certificados de Libertad de Gravámenes)
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:
Appraisal for tax assessment (Avalúo): This is used exclusively for tax purposes. Learn more about Appraisals for Baja Properties.
Property Survey (Deslinde): This is a sketch showing the property boundaries and physical features, like federal zone, roadways, easements, etc. The survey may also note topographical information, like elevation.
Other fees depend on the Notario and the 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. Learn more about Title Insurance for Baja Properties.
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. This account is normally set up by a closing agent when you deposit your earnest money. The escrow account is usually held in a US bank. Funds for the real estate purchase, including remaining downpayment, loan proceeds and closing costs are deposited into the escrow account prior to closing. The escrow money is then disbursed at time of closing based on specific disbursement instructions which are prepared prior to closing.
There are certain fees that are paid prior to closing for services provided by 3rd parties (such as the appraisal, Notario deposit, trust permit, trust set up fee). The escrow account fee is $550-$750 depending on sales price and title company that is used.
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.