How to Buy a House in Another Country
Buying a house overseas may sound like a dream — but it could be your reality if you know how to go about it. While there are challenges to foreign property purchases, 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 buy a house in another country.
Can you get a mortgage for an overseas property?
Given that most U.S. banks won’t give you a mortgage to buy a foreign property, figuring out how to borrow money to buy a house overseas can be a challenge. The good news is that you can get a mortgage for an overseas property, as long as the lender works internationally and the country allows noncitizens to buy property there.
Since the process of buying a property in a foreign country can be different from how it’s done in the U.S., you’ll want to ensure that the bank you use has experience working in the country you want to buy in. You may also consider hiring a local lawyer to help ensure everything goes smoothly — just make sure they specialize in international real estate and is qualified to practice in both your home country and where you want to buy property.
7 financing options for buying a home overseas
Even if you can’t get a domestic mortgage, you have several options for financing a house in another country.
1. 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, will 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.
2. 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 towards a home purchase without penalty.
3. 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, you could lose your house. You’ll also end up with two mortgage payments every month — your existing mortgage, plus the home equity loan.
See current home equity loan rates today.4. 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.
See current HELOC rates today.5. Personal loan
A personal loan is a lump sum loan that’s typically between $1,000 and $50,000. The interest rate is usually fixed, so you’ll know exactly how much your future payments will be — 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 good to excellent credit to qualify. You may also need to meet other lender requirements, such as a good credit history and debt-to-income ratio under 35%.
6. Developer and seller financing
Developers and homeowners may offer financing to help you borrow money to buy a house overseas. The upside to this type of financing is that it typically involves minimal paperwork, and may even be interest-free.
With developer financing, you may be able to make payments in fixed installments or as construction milestones are met. With seller financing, the terms will be whatever you and the seller agree upon.
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. It’s best to work with an attorney to help draft the paperwork.
7. Local mortgage
You may 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 and income, plus recent tax reports to do so.
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.
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, foreigners who wish to purchase property in Austria must be officially approved beforehand. In Mexico, foreigners generally cannot purchase property in certain restricted zones. And in Spain, each of the 17 regions has its own government and regulations, which can complicate matters.
The best way to learn how to buy a house in another country is to work with a real estate agent who’s familiar with the area and international purchases. Try connecting with other expat homeowners and talk to them about who they worked with. You may also want to hire a local real estate attorney to ensure you don’t run afoul of any foreign laws.
Of course, don’t forget to make sure you like the area beforehand! Buying a house in another country is a big decision that shouldn’t be taken lightly. Does your future home have the kind of weather and activities you enjoy? Is there a thriving expat community you can connect with? How about access to medical care? Each of these questions and more should be asked before purchasing a home overseas.
Questions to ask before buying international property
In addition to ensuring the region you’re buying in is a good fit for you, there are several important questions to ask before buying international property.
Will the property be hard to maintain?
Home maintenance is a key consideration with any property purchase — but especially when buying abroad as you may be less familiar with local repair options. The climate and age of the home can greatly impact the likelihood of needing repairs, but you should also consider what the general upkeep will look like. A vineyard in the south of France will require vastly different upkeep than a condominium in Paris.
Are there security concerns?
Another important consideration is security. This is true even when purchasing property domestically, but it’s an even bigger concern before buying abroad. What are the crime rates like in your chosen area? Are the authorities known to be responsive to calls for help? Be sure to factor in the cost of a home security system if you decide one is necessary.
Can I rent out the property?
If you plan to rent your foreign property or think you may want to in the future, you’ll need to check the local short-term rental laws. You may want to hire a property manager in the area as well. You should also consider taxes, since you’ll be earning income overseas. You may qualify for the IRS foreign earned income exclusion, the foreign housing exclusion and/or the foreign housing deduction if you meet certain requirements.
What taxes will I pay?
Consider the tax implications of your foreign property purchase carefully before buying. While you won’t have to report the property purchase to the IRS, you may need to pay taxes on any rental income or profits from future sales. You’ll also need to report if you open a foreign bank account. Further, if the property is valued above a certain threshold, you may also need to file a Foreign Account Tax Compliance Act (FATCA) report.
Research the tax laws in the foreign country where you’re making your purchase to determine what sales and property taxes may be owed there, as well as any reporting requirements.
Is the exchange rate favorable?
The exchange rate between the U.S. dollar and the foreign currency where you’re buying property can have a major impact on the overall cost of your purchase. If the dollar is weak in the country you’re considering, you may want to rethink your location. Even if the exchange rate is favorable today, you should be ready in case that changes in the future — especially if you’re paying a mortgage in the foreign currency. If the dollar weakens relative to the foreign currency, your monthly payments could get considerably more steep.
Still looking to buy? Consider these countries for your overseas home purchase
Now that you know how to buy, it’s time to ask yourself the million dollar question: Where do you want to become a homeowner? Here are some top options to consider and important caveats to remember before making your purchase.
Mexico
As the southern neighbor to the U.S., Mexico is a popular destination for American tourists and expats alike. It’s estimated that 1.6 million Americans live in Mexico, so you’re likely to find a thriving expat community there. Likewise, more than 20 million Americans vacation in Mexico each year, so you shouldn’t have a problem renting out your property if you choose to. The challenge to buying property in Mexico is the restricted zones, which are along the country’s border and coast. To purchase property here, you’ll need to do so through a trust.
Portugal
Portugal has much to offer, from nice weather to beautiful coastal regions and vibrant cities. It also has a good health care system and relatively low cost of living. It’s easy to get a residence permit through the Golden Visa program, even if you only spend a week or two in the country each year. However, this program is not available in Porto, Lisbon and the Algarve area.
Brazil
Brazil is one of the fastest-growing economies in South America with much to offer expats. You can find apartments, houses, villas or even commercial properties for purchase throughout the country, with no restrictions on foreigners who wish to purchase. However, you will need to abide by certain legal requirements, such as getting an individual taxpayer identification number and having all property transactions notarized.
France
Many a romantic dreams of buying a rundown farmhouse in France to renovate, but don’t let your heart run away with you. If you don’t have experience fixing up properties, you might do better with a more modern purchase. There are many areas to consider, from bustling Paris to Saint-Tropez with its view of the bay. All you need to purchase property here is a French bank account and a valid ID.
Spain
It’s also relatively easy to purchase property in Spain as a foreigner. All you need is a tax registration number, called a NIE, and then to abide by the local laws. Unfortunately, these vary across each of Spain’s 17 regions. For this reason, it’s best to work with a local real estate attorney who can help you navigate the process. You may also want to hire a local real estate agent to help you find a property. Luckily, there are plenty of English-speaking realtors to choose from.