How to Buy a House Overseas
Foreign buyers continue to be active in the U.S. market, purchasing more than 250,000 residential properties over the past year. But Americans have taken just as much interest in owning property abroad.
Most American home buyers who want to own foreign property are particularly interested in buying a home in Canada, China, Costa Rica, France, Mexico or the United Kingdom, according to a 2017 National Association of Realtors study. But there are a few key things they’ll need to know before they buy any type of property overseas.
Options for buying a home in another country
People buying a home within the U.S. have many options available to them, from banks to credit unions to direct mortgage lenders.
You are likely to face much more difficulty finding a domestic lender who will approve a mortgage for a home in a foreign country. Federal home-buying programs like a VA loan also often have restrictions preventing potential borrowers from purchasing a home overseas.
With a traditional mortgage not likely a viable option, your best options for buying an overseas property likely are:
Paying cash for a property, whether it is domestic or foreign, is an easy way to cover the cost. There is no need to fill out an application, have your credit score checked or deal with any of the other hassles people face when they take out a mortgage. With cash in hand, you’ll be a more attractive buyer and may even be able to get a deal because the process will be easier for you and the seller.
Home equity loan
If you currently own a home in the U.S., a home equity loan can help you become the owner of a foreign property. This option allows homeowners to take advantage of the difference between the total value of their home and their outstanding mortgage. Home equity loans give borrowers access to a lump sum of cash they can spend as they wish.
But potential borrowers should watch out for fees associated with these loans, and make sure they will be able to pay back the loan. Failure to pay repay a home equity loan could result in foreclosure on their U.S. home.
Using your retirement savings to purchase a home abroad is similar to purchasing the home with cash. You will likely be able to withdraw from your savings and receive one lump sum. You will want to beware, though, that you could be stuck paying penalties and other fees for withdrawing money early or limited to withdrawing a certain amount, depending on your age and type of retirement account.
Personal loans can be a flexible way to meet expenses and is particularly used for debt consolidation, home repairs and improvements, even vacations — lenders tend to not have very many restrictions on how loan funds can be used. If there is a foreign property that you have your eye on, taking out a personal loan is a possibility if you qualify to borrow a sufficient amount. Of course, in addition to paying interest, you could be charged origination and other fees.
Other considerations when buying property overseas
Making sure you can afford to purchase your foreign property is clearly a priority, but no matter how you plan to finance it, there are other considerations that will need your attention before you buy a foreign property. Each country is different, so a home purchase in France will not be the same as one in China. That’s especially true when it comes to things like residency requirements, taxes and exchange rates.
- Residency requirements. A country can limit or restrict an American from buying and owning property depending on how frequently they plan to be there. Countries like Ireland and Norway do not have restrictions on who can purchase property, while others do, including China and Australia.
- Taxes. Similar to U.S. laws, other countries can require property owners to pay taxes on their properties, but they may also be required to pay additional taxes back home even though it is not a U.S. property. This is often the case if the property is a source of income.
- Exchange rates. Exchange rates can easily throw a wrench in your plan to purchase a foreign property because the cost can increase depending on the country. For example, a buyer who plans to spend $150,000 on a home on the Spanish coast may find they can’t afford it because that particular amount is only around €132,500, which may not be enough to purchase the property.
Whether you are relocating, vacationing during the summer or retiring abroad, it is possible to find the perfect foreign property. Although there can be a few obstacles, owning a home overseas has its perks once the search is over.