Although the steps of looking for and deciding on a property are very similar here in Mexico to those in the United States and Canada, the steps to close your property and the related costs are quite different. It is important to consider these closing costs in your initial budget as they may help to determine which property is right for you.
What should I budget?
Depending on your purchase price, we generally recommend that you budget 5-8% above your purchase price for closing costs. Keep in mind that this estimate varies with the price of your home. They can be as little as 3% and as high as 20%. Why is there such a large margin? Certain closing costs involved in the transfer of property are based on a percentage of the purchase price. For example, the transfer tax in Playa del Carmen is 2% regardless of the price of the property. That is slightly higher in Cancun, Puerto Morelos, and Tulum, which charge 3.1%.
Other closing costs are a flat fee and the same for all purchases, regardless of the value of the property. For example, municipal filing fees, permits, and costs to create a bank trust are a flat fee and are not calculated based on the price of the property. Flat rate charges can drastically affect the percentage of the closing costs if the property you are purchasing is inexpensive.
If you purchase a property for $50,000 USD, the $2500 fee to create a bank trust will account for 5% of the cost. If your property is $500,000 USD, the same $2500 fee will account for only .5% cost of the property.
What does closing costs include?
These costs should include all the following:
- Acquisition taxes – this is a tax separate from your annual property taxes.
- Permit with the Minister of Foreign Affairs
- Establishment of a bank trust (fideicomiso) or Mexican corporation – this should include the first annual fee.
- Registration of the title deed.
- Attorney fees
- Notary fees
- Prorated Property taxes
Why are Closing Costs so high in Mexico?
In the United States and Canada, government revenue from the property is generated primarily from the collection of property taxes. In Mexico, that revenue is generated from the exchange or transfer of property. Therefore, the closing costs in the US and Canada are significantly lower than in Mexico, while the property taxes in Mexico are minimal compared to its Northern counterparts. Over the life of the property, the savings in property taxes will greatly outweigh the higher closing cost.
Ask for an estimate!
Your real estate professional will be able to provide you with an estimate of closing costs. Be sure to consider the closing costs as part of your budget to ensure that you get a property that you can afford. Once you have found the perfect home, this should be the easy part!