U.S. lenders – including Rocket Mortgage® – do not finance foreign property purchases. Foreign lenders also use different rules for evaluating noncitizen mortgage applications. Noncitizens looking to buy U.S. property face the same challenges when they go to U.S. lenders. Your options will depend on the purpose of your real estate purchase. The most common reasons to buy homes internationally include for residential or recreational purposes, and as investment opportunities. Below, we walk through the best methods for buying property abroad based on how you plan to use the home. Not everyone has a financial goal when they purchase abroad. Some home buyers just want a vacation home or second home to enjoy outside the country. Here are a few recommendations for buying these types of real estate overseas:Residential Or Recreational Properties
Cash
Cash really is king in some situations. By paying cash, you can close on the home purchase quicker and possibly lower the overall costs of buying a house. Occasionally, buying a house with cash can help the home buyer earn discounts, upgrades and more.
While paying for a house with cash can expedite the home buying process, cash is likely best for properties that are already built. Paying upfront for an incomplete or in-progress structure can hurt you in the long run. The developer may face delays, bankruptcy and more, making it hard to receive a refund on the home purchase.
Keep in mind that, when dealing with cash, you’ll want to understand the exchange rate in a given country. The exchange rate will affect a variety of costs involved in the real estate transaction, including the home’s sale price.
International Mortgage Lenders
There are some benefits to working with a foreign mortgage lender. They have greater knowledge of the country’s mortgage market and local laws about home buying. Plus, international lenders may provide you with access to more favorable deals and lower interest rates. However, it can be risky for a nonresident to take out a mortgage through a foreign lender. Your mortgage rates may be much higher than what locals qualify for, or you may be the victim of fraud.
It’s also commonplace for foreign lenders to implement certain rules on noncitizen home buyers. For example, they may require you to have a minimum income, rights to reside in the country or proof of sponsorship.
Developer Loans
You may be more interested in a property before construction takes place. In that case, you may want to consider a developer loan. These loans help you finance the purchase of a home site, lot or preconstruction property still in development.
The benefit of developer loans is that they typically require little paperwork. There are also no life insurance requirements or age restrictions to take out this type of loan. The financing may even come interest-free.
Real Estate Investments
You may have your eyes set on a property in the hopes of building an income or diversifying your investment portfolio. Let’s walk through some of your options for buying an investment property abroad.
Self-Directed IRA
A self-directed IRA (SDIRA) works much like a standard IRA account, but you’re in control. You choose whether to open it as a traditional IRA or a Roth IRA, and it follows the same conventions. This works well for overseas properties since the IRA doesn’t specify the types of investments allowed through an SDIRA.
However, there are some risks with using an SDIRA to buy an investment property abroad. While it can help you buy international real estate, it’s not a loophole you can use to live on the property while still calling it an investment. The IRS specifically looks for transactions like that, and they will notice. You may want to review the Approved Nonbank Trustees and Custodians list maintained by the IRS for future reference.
Country-Sponsored Programs
Some countries have Golden Visa programs. These are specifically designed to encourage foreign nationals to buy property within a specific country’s borders. These types of programs often offer benefits, such as automatic citizenship, to sweeten the deal for potential buyers and U.S. citizens. One country that has a Golden Visa program is Spain, which launched the program in 2013. The Spain Golden Visa Program only requires a €500,000 Euro investment.
