How to Buy a House Overseas
Buying a house overseas might sound like an appealing option for retirement or occasional escapes from the U.S. As you might expect, buying international property is more challenging than buying a home domestically. With research and due diligence, however, you can buy a home overseas to enjoy now or in the future. Here are key things to know about how to buy real estate overseas.
Can you get a mortgage for an overseas property?
Yes, you can get a mortgage for a property in another country. The bank or lender will need to have an overseas presence in order to assist you with getting an international mortgage.
However, many residential foreign real estate transactions are made with other types of financing and not an international mortgage, according to Kristie Parker, a commercial transactions attorney with an international client base.
7 options for buying a home overseas
Even without a domestic mortgage, you have several options for buying overseas real estate.
- Retirement savings
- Home equity loan
- Personal loan
- Developer and seller financing
- Local mortgage
As the saying goes, cash is king. That’s the case with foreign real estate as well as domestic. Buying a property with cash has several advantages, including owning the home outright, saving on interest and potentially faster closings.
With cash in hand, you won’t have to deal with an extended application process or a higher-than-expected down payment.
2. Retirement savings
Retirement accounts offer unique opportunities for investing in real estate abroad, according to Parker. The tax filing tends to be less complicated, and you can include a foreign real estate investment within a self-directed 401(k) or IRA. Typically, the real estate would be held by an LLC or trust within the retirement account.
“What’s difficult about it is [that] you can’t live in it while your retirement accounts are invested,” says Parker. “So it’s got to be more like a long-term plan where [you] buy a foreign property [and] use it as a rental, for example.”
You could also withdraw money from a retirement account, but you could face income tax and early withdrawal penalties depending on your age and the type of account.
3. Home equity loan
A home equity loan allows you to borrow a lump sum against the equity in a property you own. Equity is the difference between the value of your home and the balance of your mortgage. You can use the funds for any purpose, which could include buying property overseas.
The downside to using a home equity loan to fund an overseas property is that the loan is secured by your home. If things go awry with your foreign real estate investment and you experience difficulties keeping up with your loan payments, it endangers the property you borrowed against.
A home equity line of credit (HELOC) also allows you to borrow against equity in your property. Instead of a lump sum, you are approved for a credit line. You can use as much or as little of the credit line as you need during the draw period, which typically lasts for 10 years. You can usually make interest-only payments during the draw period.
After the draw period, you enter a repayment period. This typically lasts 15 to 20 years and requires paying down the amount you borrowed.
Things you should know
Like a home equity loan, HELOCs are secured by the property you borrowed against. They also have variable rates, and the payments could be higher than expected once you enter the draw period. If your foreign real estate purchase doesn’t work out as planned, your financial situation could end up complicated. A HELOC does give you flexibility in terms of how much you can borrow, which could be an asset while you’re buying a house overseas.
5. Personal loan
A personal loan is a lump sum loan that typically has a fixed interest rate. They tend to have higher rates than home equity products. To get the best rates, you’ll need good-to-excellent credit.
You can use the loan proceeds for any purpose, including buying overseas real estate. As long as the terms are good and the installment payments fit into your budget, a personal loan is a relatively straightforward way to buy foreign property.
6. Developer and seller financing
Developers and homeowners may offer financing. If you go this route, be sure to vet anyone you’re working with.
Work with a local real estate agent and attorney to ensure the person you’re working with has the right to transfer the title to you. Consider having any paperwork professionally translated so you know exactly what you’re signing.
7. Local mortgage
If you have a local foothold, such as dual citizenship or a spouse who is a citizen, you may be able to qualify for a local mortgage. Obtaining a mortgage from a foreign bank may require a higher down payment and take longer to process.
The process of clearing the title could also take significantly longer than you might expect. Working with local experts can help you navigate the process.
How to buy real estate overseas
The first step in buying a house overseas is confirming that you can. Some countries restrict who can own property. For example, in Mexico, foreigners can’t directly own property within restricted zones. These zones extend 50 kilometers inland from the ocean and 100 kilometers from international borders. Foreigners can buy land in these zones through a trust.
To know the ins and outs of the local real estate market, you’ll need to hire an experienced real estate agent. Word of mouth is the best way to find one. Talk to the local expatriate community and find out who they worked with. Consider finding a local real estate attorney as well to ensure you’re compliant with local laws.
Once you’ve secured professional assistance, they can guide you through the local real estate landscape. As with any real estate purchase, take your time and thoroughly inspect any property before buying.
5 factors to consider before buying international property
There’s more to buying a house overseas than just purchasing the property. Here are other factors to consider.
Holding costs: Like any property, you’ll need to have funds set aside for upkeep and maintenance. These may be specific to the region you’re buying in. For example, tropical regions require more outside maintenance than many are used to. “If you fail to do that, it can result in a lot of damage, [including] roof damage or tile damage,” says Parker.
Security concerns: What security measures does the property have in place? Will you need to add bars or other security features? You should also consider who will look after the property when you’re not there.
Short-term rental issues: In addition to needing someone local to manage short-term rental issues, you’ll need to comply with local and U.S. tax laws about rental income. You’ll also need to confirm that you’re allowed to rent out the property.
Taxes: Sales taxes could add to the cost of buying your property. Property taxes will likely also need to be paid. If you have a foreign bank account with a balance that exceeds $10,000 at any point, you’ll also need to report that to the IRS.
Exchange rates: Currency exchange rates are constantly changing. While the dollar is strong in many places, keep an eye on exchange rates and how they could affect buying property offshore.
5 countries to consider for buying a house overseas
Many countries could be the right place for your foreign real estate investment, but some are easier to navigate than others. Here are five countries to consider.
It’s close to the U.S. and a popular tourist destination, which means renting out your property shouldn’t be an issue. It also offers a lower cost of living in many areas. Keep in mind that if you want property on the coast, you’ll need to buy it through a trust.
France has long been popular with expats. After all, it’s a cultural center with a rich history. Its real estate market has stayed relatively strong and has seen consistent growth. You may be able to find a real estate agent who speaks English, which will be key to navigating the somewhat complicated real estate buying process in France.
Panama is another location popular with foreign buyers due to its warm climate and low cost of living. Foreign buyers are welcome, but there are restrictions on beachfront and island property and along Panama’s borders.
Spain offers warmth and, in many places, a relatively low cost of living. Residents and non-residents can purchase property, but rules vary regionally as to whether you can rent that property out. Spain also offers a residency visa if you meet minimum property investment requirements.
5. Costa Rica
Costa Rica offers a relatively low cost of living, and foreigners, for the most part, have the same rights when buying property as locals. Beachfront property is more difficult to directly own if you’re a foreigner. It also offers a warm climate and excellent health care.