How to secure a foreign bank mortgage: tips for international buyers

Securing a mortgage from another country can be done, but the feasibility varies widely based on the country, lender, and your specific profile as a U.S. buyer. To secure the mortgage, you must first meet some practical requirements.

Can I apply for a mortgage with a European bank?

Yes, many European banks offer mortgage financing for foreign buyers. However, as we said, specific criteria must be considered and met, including where you're buying the property and, in many cases, your residency status. Banks are typically more willing to lend to customers with large deposit amounts and high incomes, but you will still need to have a decent local credit score to qualify.

Will a U.S. bank provide financing for property outside the U.S.?

Though less common, some U.S.-based multinational banks may offer specific international mortgage options. However, they typically focus on high-net-worth individuals or those with existing accounts. In most cases, U.S. banks do not extend home loans for properties outside U.S. borders, so it's often more feasible to approach a bank in the country where the property is located.

How much do I need to deposit to buy a property abroad?

Foreign mortgage deposits can range widely from 15% to 50% of the property's value, depending on the country, bank policies, and your risk profile as an international buyer.

Some lenders require higher deposits as security since a foreign buyer's credit history may not be locally established.

However, if you are a customer with a good credit history with a multinational bank, they may share your credit information with your destination market when you're applying for an overseas mortgage. Note that deposits may be non-refundable for non-residents in some countries. Hence, it's important to be certain of your purchase and do all the relevant investigations before investing.

Related reading: Five things to consider before buying a holiday home abroad.

Below are some factors to consider when getting an international mortgage.

Local mortgage market

Start by researching and analyzing the local mortgage market in the country where you plan to get the mortgage. This includes researching available mortgage types and local lenders. You can also take it further by contacting them directly to ask questions. This step also involves researching the local economic factors that can influence the mortgage offer. Economic stability, inflation rates, and currency trends can all affect the mortgage offers available to you. You can do this step alone, but if you find these beginning phases too overwhelming, feel free to enlist the help of an expert.

Lender policies on foreign buyers

While researching, you might discover that some banks don't lend to foreigners. In contrast, those that do may have special requirements you must meet, like permanent residency or local credit history, so before moving forward, you should check if the country you're buying has any restrictions for foreign buyers, including residency or citizenship requirements.

Decide between a domestic or local lender

Next, you would have to decide whether you want to go with a lender in your home country or in the country where you’re buying. Domestic lenders (such as US-based banks) often offer familiarity with your home country’s laws and tax obligations, and arranging financing in your own language can simplify the process. However, local lenders may offer a broader range of mortgage options specific to that market, which could provide more favorable terms.

Down payment and deposit rules

As mentioned, some banks, not all, give loans to foreigners, and those that do may have special requirements. One of those requirements may require you to make a larger down payment. It’s also not uncommon for the down payment made to be non-refundable deposits for non-residents. Check if these rules apply in the country where your property is located, as they can impact your upfront costs and overall budget.

Currency exchange rates

If you take out a mortgage with a local lender, payments will likely need to be made in that country’s currency. This includes currency conversion and also exchange rate fluctuation, which can make payments more unpredictable over time.

You may also like: 8 key steps of your first real estate purchase

The best options for securing a foreign bank mortgage include:

• Local banks in the country: Local banks are generally the first stop for international financing. Countries with a high volume of foreign buyers (e.g., Spain, Portugal, and Mexico) often have dedicated loan products for overseas investors. You'll need to check that they support your chosen country or territory.
• International banks: If you have an established relationship with a multinational bank like HSBC or Santander, inquire about their overseas mortgage products.
• Mortgage brokers specializing in foreign markets: Working with a broker specializing in international loans can simplify the process. They have existing relationships with banks in multiple countries and understand the paperwork required. However, if you choose to use an overseas lender, use your own independent lawyer and translator to protect yourself from fraud.

If you are ready to get a mortgage in a bank abroad, we assume that you've already researched the local property market you want to invest in and understand the prices, demand, and restrictions on foreign buyers to a large extent.

Furthermore, we assume you've properly considered the property location, which may affect how the lender assesses your application.

That said, to secure a foreign bank mortgage, certain requirements must be met. Let's review a few of them:

• Step 1: Get an excellent credit score An outstanding credit score will improve your chances of securing a mortgage. It will also give you access to more lenders and lower interest rates.
• Step 2: Ensure your documentation is complete Make sure you have complete documentation, including income statements, proof of address, tax returns, and sometimes a personal reference. This is necessary to get an "agreement in principle." An "agreement in principle" is a report from a lender detailing how much you can borrow. Next, plan for the down payment and closing costs. After this, you can formally apply.

While some investors may prefer working directly with a local bank, others may prefer a broker's added convenience and expertise. Here's a closer look to help with your decision:

While dealing directly with the bank may mean fewer mediator fees, brokers offer convenience and flexible terms or tailor solutions to meet foreign buyers' unique needs. They may come with added costs, but their expertise can save you from pitfalls in unfamiliar markets.

Pro tip: If you hire a broker, ensure you understand who pays them. Not all brokers cooperate with all lenders, and unethical brokers may select to market only lenders who pay a greater fee. Before you commit, be sure your broker has access to a wide variety of lenders.

Real estate practices worldwide are different; hence, you must understand the local process to avoid violating any laws or making costly errors. Here are some countries' notable real estate practices:

● Australia: With some exceptions, non-residents in Australia need foreign investment approval to procure residential properties unless they're acquiring a new dwelling or vacant lot, which must then be developed within four years of purchase. ● China: Foreigners can acquire commercial real estate if they plan to occupy it themselves. ● Brazil: Foreigners can purchase apartments, houses, villas, or commercial properties throughout the country without restrictions. However, you will need to abide by specific legal conditions, such as getting an individual taxpayer identification number and notarizing all property transactions. ● Spain: Buying a property in Spain is relatively easy. All you need is a tax registration number, called a NIE, and then obey the local laws. However, these requirements vary across each of Spain’s seventeen regions. For this reason, it’s advisable to work with a local real estate counsel who can help you navigate the process. ● Mexico: The challenge to buying property in the southern neighbor of the U.S. is the restricted zones along the nation's border and coast. To acquire property here, you'll need to do so through a trust.

Buying a property abroad can be exciting. Below are some of the many benefits:

• You can achieve higher ROI, especially if you want to buy a property in an emerging market. Of course, all investments have risks. But depending on your position, the risk might be worth the potential returns.
• According to Numbeo, the United States is one of the world's top twelve most expensive locations to live. This means that purchasing a house practically anywhere else in the world could help you benefit from a lower cost of living.
• You can experience tax advantages; however, note that choosing to open a foreign bank account to make the purchase process smoother will result in additional tax filing obligations.
• Owning an international property can help diversify your investment portfolio. This is especially true if the property provides a new stream of income.
• If you own a property abroad, you can enjoy your vacations cost-effectively as you won’t have to spend more money on.

What are additional factors to consider before buying property abroad?

Do not rush when purchasing a home abroad. Instead, consider all of the details. Here are additional factors to consider.

Higher down payment and closing costs

When purchasing a home abroad, you might face different down payment and closing costs requirements, and some lenders might demand higher down payments for foreign home purchases.

Will you rent your property to vacationers, or is it for self-use?

If renting to vacationers, consider how you will manage that from afar. In many cases, you may need to hire an estate manager who lives in the area to help you keep everything running smoothly.

Note the country’s laws

Property ownership means different things in different countries. It’s essential to understand how the country’s law on estate ownership will impact your own purchase.

Watch out for potential scams

While buying a foreign home, being on guard for potential scams is essential. Since you'll be in unfamiliar territory, the shady legal waters could open you to fraudsters. Be particularly careful if working with a foreign mortgage brokerage.

Watch out for malicious prices

Another thing to watch out for is malicious overpricing. Unfortunately, some dubious agents will target foreigners and try to sell them property for more than it's truly worth. Work with a legitimate real estate agent and local attorney to help you avert any potential scams.

Political risks

If you buy a property in another country, the political situation in that country may have an impact on your new property. Purchasing property in a country with an unstable economy or government increases the risk of property damage or loss. While losing the home completely is an extreme case, the property's value could fall if the country's politics send the economy spiraling. Before making a purchase, attempt to honestly examine the political dangers associated with the country in question.

Can investing in real estate abroad impact my retirement plans?

Foreign real estate investments can impact retirement planning, portfolio balance, and value. Furthermore, owning and maintaining property overseas can be logistically and financially challenging if your travel habits change after retirement. Consider how such investments fit into your retirement goals and whether they are consistent with your risk tolerance and portfolio plan. Also read: First time home buyers: five mistakes to avoid.

What are the tax consequences of buying property in another country?

Tax implications vary widely. Some countries may offer favorable tax rates or even tax incentives for foreign property buyers. However, working with a local tax advisor is crucial to stay compliant with both U.S. and foreign tax laws.

How do changes in currency exchange rates influence overseas real estate investments?

Significant changes in the currency exchange rate can drastically impact the total cost of your investment. If the dollar is weak in the country you're considering, you should rethink your location. Even if the exchange rate is favorable right now, you should be prepared in case it changes in the future — especially if you're paying the mortgage in foreign currency. If the dollar weakens against the foreign currency, the monthly payment you make could get considerably steeper.

If you are set to buy a property overseas, here are the steps you will typically take:

• Step 1: Ensure eligibility. First, you must research to ensure you can buy a property in the country. Some locations place restrictions that prevent foreigners from purchasing property.
• Step 2:Ensure that the location is right for you. Since buying a property anywhere requires a substantial investment of time, money, and energy, ensuring that the location fits your goals is important.
• Step 3: Hire a local attorney and real estate agent. As a foreigner, knowing all the laws involved with acquiring property in a foreign country is difficult. Instead of going it alone, it's a good idea to work with a local attorney and estate agent to help you navigate the process.
• Step 4: Determine financing. As with any home purchase, determining financing is a crucial part of buying a house overseas.
• Step 5: Find and propose an offer on your overseas home. Once all of your financing details are secure, it’s time to search for a property. At this point, your local estate agent will become invaluable.
  Many countries don’t offer a multiple listing service (MLS), making it difficult to find properties for sale and accurately assess their value. Thankfully, Properstar simplifies the process of finding and purchasing. Once you find a place that suits your needs, making an offer is the next big step. Find your dream property abroad in just a few clicks!
• Step 6: Close on the property. If the seller accepts your proposal, it’s time to close the property.