Buying property with a mortgage in another country where you’re not living and working is possible in some cases… but it’s not easy.
You may be better off looking for other solutions in some countries.
High deposits, life insurance required by banks in most countries, and shorter loan periods can all add up to high monthly payments.
Banks will often apply stricter lending criteria to non-residents, meaning you may need to show higher income levels, more savings, or even existing banking relationships in that country.
Currency risk is another factor. If your income is in one currency and your mortgage is in another, exchange rate fluctuations can significantly impact your real monthly cost over time.
Mortgage rates in Colombia, for example, are as high as 19% for peso loans from banks. You can find lower interest for loans made using what is called UVR (Unidad de Valor Real), which is a tracking unit value.
The lower interest rate is offset by inflation, i.e., the principal amount can increase in pesos with inflation. That doesn’t sound like a great option to me…
Colombia is on my mind at the moment as Kathleen and I have listed our apartment in Medellín for sale and are contemplating whether to offer seller financing since the most likely market for our apartment is the foreign market.
Seller and developer financing can be the way for you as a foreigner and non-resident of a country to get a mortgage when buying in another country. These arrangements are often more flexible and negotiated directly, which can make them appealing if traditional banks decline your application.
The downside is that the term of the loan will be relatively short… maybe up to 10 years but more likely no longer than five.
A shorter term makes the monthly payments higher… but the upsides of seller/developer financing are that, in most cases, your age won’t matter, and you probably won’t have to go through any formal qualifying.
In some cases, you may also be able to negotiate the deposit amount, repayment schedule, or even early payoff terms, depending on the seller’s needs.
Of course, you likely won’t get title until you pay off the property in full. That said, I bought a commercial building in Panama from a seller who transferred title and registered the mortgage. That was a 10-year loan.
Where should you look to invest overseas if you need or want a mortgage? I’d say before you start looking, you should think about what you might qualify for…
First, if you’re over 60, you need to remember that the best term you might get is up to age 80 in some countries and 70 or 75 in most countries. Can your budget handle a 20-year, 15-year, or a 10-year mortgage amortization?
Also consider how stable your income will be over that period, especially if you’re nearing or already in retirement.
Then add in the cost of life insurance that will be required by banks in most countries. Again, being older pushes the cost up.
You may say you already have a life insurance policy, but the banks want a policy in the country where the property is located… and really, they want you to buy the policy through them, as it’s an additional revenue stream for the bank.
This requirement can sometimes catch buyers off guard and increase the overall cost of borrowing.
Once you’ve thought through the pros and cons of a bank mortgage, you may find that looking for a developer or seller offering financing is more attractive for your situation.
Again, it’s possible to get a loan to buy property in another country. You just need to understand your options.
Stay diversified,
Lief Simon
Editorial Director, Global Property Advisor