How Much Home in Paradise Can I Afford?

You have made the decision that a home near the Sea of Cortez is right for you, and now the question is how to pay for it.  If you are one of the lucky ones with expendable cash, you are in the best position to purchase the property you want, and, to the limit of your expendable cash, the Taj Mahal or something like it is yours. On the other hand, if you need financing, have a down payment, and are long on the ability to make monthly payments, you may be able to purchase with a loan, given the right circumstances.

Bank loans for property are not readily available to foreigners to Mexico, but often seller and buyer can work together on a transaction that involves owner financing.  In this scenario, the seller becomes the lender, usually to the benefit of both seller and buyer.

Currently (July 2016) interest rates for owner financing of Puerto Peñasco properties hover around 6% APR.  Americans think that is crazy high, since loan rates for homes in the USA are quite low – usually 4% or less.  However, those loans are from large institutions, rather than private individuals.  Conversely, Mexicans think the rate is crazy low, because they cannot get a property loan from a bank for much less than 10%.  In any case, we are not in the USA, and while we might negotiate a lower interest rate, 6% is the prevailing rate, at least for now.

The figures below shows what a buyer should expect to afford, assuming a 10-year loan at 6% APR.

BALANCE FINANCED MONTHLY PAYMENT
$65,000 $721.63
$75,000 $832.65
$85,000 $943.67

The chart below shows the price of the property you can afford, based upon different loan amounts.  Please note that this addresses ONLY the cost of the property, and does NOT include closing costs,  which will add to your initial out-of-pocket expenses.

DOWN PAYMENT BALANCE FINANCED PRICE THAT CAN BE PAID FOR PROPERTY
$30,000 $65,000 $95,000
$30,000 $75,000 $105,000
$30,000 $85,000 $115,000

Your real estate agent can help you to calculate the numbers for your property purchase.  If one backs into the transaction, assuming an annual interest rate (APR) of 6%, and starting with the cash on hand for a down payment, then deciding the monthly payment that the buyer can affordably and reliably pay, and the length of time buyer will pay, usually 3-10 years, but the shorter the better, the agent and the buyer can together decide the approximate cost of the property that can be afforded by the buyer.

If the buyer has decided on the area in which he wants to purchase, the real estate agent, armed with a realistic price range, can find all the properties that fit the criteria of the buyer on the Multiple Listing Service.  MUCH time and effort looking at properties that are not affordable to the buyer will be saved.  Nothing is more frustrating than to have the perfectly-priced perfect home get away while you are looking at homes that you simply cannot afford to buy. As well, buyers have more fun looking at properties they can actually afford – looking and wishing for what they cannot hope to have usually causes frustration, and it certainly misleads the real estate agent, who really does want to help the buyer find the right property. Honesty and trust between the buyer and his real estate agent will help the agent to help the buyer to realize his goals, and maybe even his dreams.

 

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