Closing Costs in Mexico [All You Need to Know in 2023]

Types of Closing Costs in Mexico

Let’s now dive into the different types of closing costs you as a buyer have to prepare for. There are up to 8 of those, depending on your own preference.

The Land of the Notary

In Mexico, the notary plays a pivotal role in real estate transactions.

Unlike in some other countries, where notaries merely witness signatures, in Mexico, they are highly trained legal professionals responsible for drafting and reviewing all real estate transactions.

As a buyer, you have the right to choose your notary, although it’s common for the seller to suggest one.

Notary fees can vary but generally range between 5,000 to 10,000 USD. These fees cover the notary’s services, document preparation, and registration.

Acquisition Tax and Property Transfer Tax

When purchasing a property in Mexico, you’ll encounter two types of taxes.

The ISR (Income Tax) is calculated according to the cadastral value of the property. The % of ISR will depend on the profit you are making from the sale of the said property (applies to properties that are already built and delivered).

Additionally, there is the Tax on the Acquisition of Real Estate, or ISAI (Impuesto sobre Acquisición de Inmuebles), which is a state-level tax.

Rates vary by state but generally range from 2% to 6%. Both taxes are usually the responsibility of the buyer.

Appraisal Fees

Before finalizing a property transaction, an appraisal is often required. The appraisal provides an independent evaluation of the property’s value, helping to ensure that the purchase price aligns with market conditions.

Appraisal fees vary but typically range from 0.1% to 0.5% of the property value.

Bank Trust Fees (Fideicomiso)

Foreigners looking to buy property in Mexico within the restricted zones (areas near borders and coastlines) often need to use a bank trust, known as a fideicomiso.

This legal arrangement allows non-Mexican citizens to hold property in these designated areas. The bank charges an annual fee for managing the trust, usually around 0.5% to 1% of the property value.

Public Registry Fees

Registering your property with the public registry is a crucial step in the home-buying process.

This ensures legal ownership and protects your investment. The registration fee is typically a percentage of the property value, ranging from 0.01% to 0.1%.

Title Insurance

While not mandatory, title insurance is a wise investment that protects you against potential issues with the property’s title. The cost varies but is generally around 0.5% to 1% of the property value.

Title insurance provides peace of mind, assuring that you won’t face unexpected legal challenges regarding your property’s ownership.

Escrow Fees

Engaging an escrow service adds an extra layer of security to the transaction. The escrow company acts as a neutral third party, holding funds until all conditions of the sale are met. Escrow fees typically range from 0.5% to 1% of the transaction amount.

Again, this type of closing cost is not mandatory but optional.

Capital Gains Tax for Sellers

If you decide to transfer your property in the future, be aware of the capital gains tax. The rate varies but is generally around 30% of the gain. However, there are exemptions available, particularly if the property is your primary residence and meets certain criteria.

Final Word

In conclusion, closing costs in Mexico encompass a variety of fees and taxes that buyers and sellers need to be aware of to ensure a successful and legal real estate transaction.

From notary fees to appraisal costs, each component plays a crucial role in the process. It’s essential to work with reputable professionals, understand the local regulations, and be prepared for the financial responsibilities involved.