Closing Costs in Mexico: What to Expect?

Although the steps to find and buy a residential property in Mexico are very similar to those in the United States and Canada, the reality is that the closing costs and related prices are a little different. Closing costs are divided between the buyer and seller and are not part of the transaction negotiation. It is important to consider them within the initial budget to ensure you are looking at prospective properties that are in the right price range for your overall budget.

Below we share what you should be prepared for and budget for with regard to closing costs in Mexico, as well as other issues and costs that should be considered when acquiring a property in our country.

When buying a residential property in Mexico, you must consider certain additional expenses that are associated with the process of legal transfer of the property to the buyer.

Closing Costs: What are They?

Closing costs are the total expenses that the buyer incurs when a real estate transaction is completed or closed. These cover different line items that are basically associated with the legal transfer of the property to the buyer.

Depending on the purchase price of the property, it is generally recommended a buyer add 3 to 5 percent of the purchase price to be paid toward the buyer’s share of closing costs. It should be taken into account that this estimate varies in terms of the price of the house, cadastral value and the buyer’s tax situation.

What Do Closing Costs Include?

When purchasing a property in Mexico, consider covering the following fees:

· Taxes:

• Registration of the Deed in the Public Registry
• Property Acquisition Tax (ISAI) or Domain Transfer Tax
• Income Tax (ISR)
• Property Tax

· Trust or Mexican Corporation (In Case of Foreigner):

Because a non-Mexican cannot own property outright within 30 miles of a coast in Mexico, a trust is required to hold ownership of the property. The fees to create a Mexican Trust or Corporation may vary according to the financial institution and depend on whether a trust is being transferred from one owner to the next or if a new one is being opened. The fees quoted will also include the payment of the Trust for the first year.

· Notary Public Fees:

In Mexico, any legal acquisition of real estate must be administered through a notary public, as they are legally responsible for ensuring that the title to the property is clear of any prior mortgages and that it is correctly entered in the public registry. The fees paid to the notary are based on the purchase price of the property and are just one part of the overall closing costs associated with a purchase.

· Legal Fees:

Another portion of the closing costs are for the legal fees paid to law firms for services ranging from consulting and advisory to a full range of additional services. Law firms ensure a smooth process throughout the legal intricacies of processing all the documentation needed for the sale of the property with the goal of preventing setbacks in the process that can delay the closing process.

Are There Extra Expenses to Consider?

In reality, these depend on each person and/or owner. For example, it is advisable to take out insurance to protect property. In addition, the moving service, cleaning and even some damage that may arise should be considered.

Who Pays the Closing Costs?

The buyer pays the Property Acquisition Tax (ISAI) or Domain Transfer Tax, as well as all associated closing costs, including notary fees and expenses. The seller is responsible for paying the Income Tax (ISR) and commission to the real estate broker or agent.

Why Are Closing Costs High in Mexico?

The reality is that many foreign buyers are surprised to see that the taxes they will pay at closing are much higher than what they are used to in the United States and Canada. The reason is that in Mexico a large percentage of property taxes are collected at closing. Although this may seem like a lot to pay up front, the price will be offset when the annual property tax is charged. There is a trade-off in that the Property Tax is very low on an annual basis because it is calculated at a fraction of the real value of the property.