Americans buy overseas properties, sometimes known as foreign investments, for vacation homes or second homes, and also for investment or retirement homes. Once you've found your overseas dream property, applying for a loan with which to purchase it follows the same basic steps for both domestic and international lenders. Some pre-shopping research, however, helps smooth the loan process.
The lender who finances the loan to purchase an overseas property need not be based in the country in which the property is located. If you do use a lender in a foreign country, you must meet qualifications similar to those required by U.S.-based lenders. You'll need to complete an official loan application. The lender requires a legal description of the property and passports for the property buyers. You must also show proof of your income to qualify and show you have the cash for a down payment. Lenders look for clear credit reports that show a history of meeting payments. Applying for loans in non-English speaking countries when you don't have language skills to complete the paperwork and required interviews means hiring a local lawyer or accountant.
Domestic and foreign lenders evaluate your property after ordering an appraisal to determine its worth. Lenders also review any potential risks to the property, including close proximity to water. Lenders within the same country of the property typically have a better understanding of acceptable property risks compared with out-of-country lenders.
Before you pursue any loan, check the stability and safety of any country where you are considering buying property. Some domestic lenders refuse loans for purchase countries in which governments have seized homes belonging to foreigners. If you wish to purchase property in such a country, look for an in-country lender who understands the local situation and is willing to take the risk of a property seizure by the government.
Getting a loan from a U.S.-based bank offers the advantage of keeping finances in country, but it also may require a larger down payment -- sometimes as much as 40 percent minimum down.
Opening a banking account in the foreign bank from which you hope to obtain a loan before applying for the loan may be advantageous. Banks look more favorably on overseas mortgage loans from current bank customers. If you have credit cards or do online checking or savings with a foreign-based lender, you already have current financial ties with the foreign bank.
Bankers in the host country will have an understanding of the property market and intimate knowledge of the prospects for potential property appreciation. The advantage of doing business with a foreign bank with branches in the United States is obvious. One disadvantage is a requirement that you deposit cash in long-term accounts to receive loan approval. Foreign lenders sometimes demand deposits of as much as $100,000.
Researching your overseas property includes reviewing foreign laws regulating land ownership. Overseas sales agreements occasionally require you to place the property title in a national trust. The inability to hold formal title to a property discourages many domestic lenders and limits your choices for a lender.
The government of Mexico, for example, allows foreigners to purchase Mexican properties within 31 miles of its coastline and within 62 miles of its land borders only under an agreement that Mexican mortgage banks hold legal title to the land. Still, foreigners have the right to use, sell, improve and transfer such property.
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