Buying Property Abroad: A Guide to Purchasing International Real Estate
Buying property abroad may sound like a dream — but it could be your reality if you know how to go about it the right way. While there are more considerations when buying foreign property, we’ll break down your options and provide resources to help you navigate the process. Whether you dream of owning a country villa in Spain or a beach house in Mexico, here’s how to get started purchasing a house in another country.
Define your goals for your international property
The way that you intend to use your foreign property can help you narrow down some of the most important details of your housing search, such as location, property type or financing arrangement. Typically, you’ll want to decide between:
- Second home abroad: Those in the market for a vacation home may want to focus on resort areas, where they can really feel like they are off the clock.
- Income-producing property: Meanwhile, if your goal is to rent out the property, you’ll likely want to focus on areas that are popular with tourists. You’ll also want to research local rental market metrics, like average rents and occupancy rates.
- Permanent residence: On the other hand, if your goal is to settle permanently overseas, it’s a good idea to zero in on areas you love spending time in. You’ll also want to educate yourself on visa requirements, expat tax implications and healthcare options.
Research the local real estate market
When you’re ready to dive into the real estate market, consider hiring a local real estate agent, particularly one with experience working with expats. (If you happen to be buying luxury property abroad, also consider hiring someone who specializes in luxury real estate.) In either case, they’ll likely have the experience necessary to answer your questions and structure your home search productively.
As you browse listings, here are a few different factors to consider:
- Market trends: Ask about current sale prices and forecasted growth. Generally, up-and-coming areas offer the opportunity for greater appreciation, while popular locales remain more stable.
- Local laws: Check to see if there are any local laws that pertain to foreigners buying property. For example, Mexico prohibits expats from buying property near the country’s coastlines.
- Lifestyle preferences: Consider local amenities that are important to you, such as walkability, public transportation or schools.
- Political concerns: Look into factors like the exchange rate or any changing economic policies that may impact your property’s value over time.
Consider your financing options for buying property overseas
There are several options for financing a home purchase in another country.
1. Domestic mortgage
Some banks and mortgage lenders offer international loans, which allow you to use a domestic mortgage to buy property overseas.
If you decide to go this route, you’ll need to focus on finding a lender that has completed transactions in the country where you’re planning to buy a home. However, going this route has several advantages, including being able to complete the mortgage loan paperwork in your first language and saving on translation costs.
Not sure where to start your search? Check out LendingTree’s list of the best mortgage lenders.
2. Local mortgage
You may also be able to get a mortgage from a bank in the foreign country where you want to buy property. You’ll likely need to provide proof of your identity, plus your income and assets.
However, foreign bank mortgages can take time to establish and come with high interest rates and down payment requirements. You should also be aware of the exchange rate impact of any foreign currency mortgages: If the value of the foreign currency rises relative to the U.S. dollar, you could end up paying more than anticipated.
3. Cash
You can always pay cash for your overseas house. Buying a property with cash has several advantages, including the fact that you’ll own the property outright, save money on interest and potentially close on the home faster.
You also won’t have to worry about fluctuating exchange rates between the U.S. dollar and the currency of the country where you purchased the house impacting your monthly mortgage payments. Plus, a cash offer is attractive in any language.
4. Retirement savings
If you don’t have enough cash in your savings account to cover your foreign home purchase, one option is to tap your retirement savings to pay for the property. While there are many drawbacks to taking money out of your retirement savings early — including a potential 10% penalty and loss of future earnings on the money you withdraw — the IRS does allow for first-time homebuyers to use up to $10,000 of their IRA retirement savings toward a home purchase without penalty.
5. Home equity loan
If you already own a home in the U.S., a home equity loan lets you convert a portion of your current home’s equity into a loan you can use towards purchasing a property overseas. Equity is the difference between the value of your current home and your existing mortgage balance. You’ll need to have considerable equity in your home for this to work, as many lenders require an 85% loan-to-value ratio.
The risk of a home equity loan is that your current home is the collateral on the loan. This means that if you default on your loan, you could lose your house. You’ll also end up with two mortgage payments every month — your existing mortgage, plus the home equity loan.
6. Home equity line of credit (HELOC)
Another way to turn the equity in your current home into cash is through a home equity line of credit (HELOC).
HELOCs work like credit cards that are backed by the value of your home. You can access the credit line anytime you need it and only repay the amount you use. This flexibility can come in handy if your foreign property purchase doesn’t go as planned.
HELOCs can have better interest rates than home equity loans, but come with the same risk of foreclosure if you don’t make payments on time.
7. Personal loan
A personal loan is a lump-sum loan with a fixed interest rate. However, the rates tend to be higher than with home equity loans. This is because many personal loans are unsecured, meaning you don’t have to put up collateral to get the loan. Instead, you’ll need a decent credit score and proof of income to qualify. You may also need to meet other lender requirements, such as a good credit history and a debt-to-income ratio under 35%.
8. Seller financing
Existing homeowners may offer financing to help you borrow money to buy a house overseas. The upside to seller financing is that it allows you to buy the home under whatever terms you and the seller agree on.
For seller financing to work, the seller often needs to have considerable equity in the home, if not already own it outright. The downside to these arrangements is that both you and the seller typically have access to fewer legal protections than with more conventional loans. In this scenario, it’s best to work with an attorney to help draft the paperwork.
Undergo the legal process for buying property in your new country
Every country has a different legal process for purchasing real estate. Here are a few tips to help ensure that it goes smoothly:
- Hire a local attorney: Consider hiring a local real estate attorney, preferably one who has experience working with expats. They can help you understand the contracts you’re signing and may help you conduct due diligence on certain aspects of the transaction, such as verifying property ownership.
- Understand the role of the notary: In other countries, notaries have different functions. For example, in France, the notary will conduct the necessary due diligence for the property. However, in Spain, the notary doesn’t perform that role. Make sure you know what to expect, so that you can avoid any misunderstandings.
- Ask questions: If you’re unsure at any point in the process, don’t be afraid to ask questions of your team. In this instance, it’s better to be safe and receive clarification than to realize you made a mistake later on.
Take after-purchase considerations for buying property abroad into account
After you’ve bought the property, there are still other important factors to keep in mind. We’ve provided an overview of what could be on your mind:
- Property management: If you’re planning on renting out your property, you’ll likely need to hire a local property management company to handle generating rentals, unit turnover, maintenance and general check-ins.
- Maintenance and upkeep: If you aren’t renting, but also don’t plan to live in the home full-time, you may want to hire professionals to take care of maintenance and upkeep for your property. Think about hiring help for things like making sure the lawn gets mowed and that the heat gets turned on so that pipes don’t freeze in cold weather.
- Tax considerations: Research things like whether you have to report taxes in both your home country and the new one where you’ve purchased property, as well as how any capital gains will be handled if you ever decide to sell.
- Ongoing costs: Budget around the ongoing costs of homeownership, such as property taxes, insurance payments and property upkeep.
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