Your overseas property purchase doesn’t need to be stopped by financing. You can apply for a mortgage. However, getting mortgage for foreign property isn’t like getting a mortgage at home. This article considers some ways to tip the balance in your favor.

Why bank financing isn't always available for overseas property

When it is available and comes with no string attached, bank financing is the best option to buy foreign real estate. But alas, it’s not usually available. In many markets, it's hard to get loans as a foreign buyer. In Colombia for example, banks don't care if you're a legal resident, as long as you're a foreign buyer, you're not getting mortgage. It's easy to see why this is so. A foreign buyer isn't tied to the country; he can up and leave at any time, taking the bank's money with him. Banks wouldn't want to take this risk. Hence the hassles of getting mortgage for foreign property. This is one of the things stopping passionate investors from traversing foreign lands.

Resident and non-resident bank financing

So, let's say bank financing is available; it most likely would come in one of the following categorizations:

Ø  Resident financing: Except for countries like Colombia, most local banks would treat your loan application as they would treat that of a citizen if you're a legal resident. You'll have to prove credit worthiness just like any citizen and may not have to go through any other process or requirements. This is called resident financing.

Ø  Non-resident financing on the other hand is difficult to secure. Wherever it is available (countries like France, US, Mexico, Panama, The Dominican Republic, Portugal and New Zealand), it comes with a number of restrictions and requirements. Also, the rate you get may not be favorable, except in France, where it's possible for a non-resident with good credit to access a 20-year mortgage at a rate of just 2.25 percent.

Tips To Get Mortgage When Buying Foreign Property

So, here are some tips to help you secure mortgage when buying foreign real estate

1. Don't go it alone.

Even professional property investors get professional assistance when buying foreign property; this could be through experienced local agents or friends. They understand that investing overseas is a much different ball game. If you're in the UK, you can seek the help of an agent selling property overseas through the following bodies:

1. The Association of International Property Professionals (AIPP) and
2. The National Association of Estate Agents International

2. Find a bank that has a presence in your country and the country in which you want to buy a property.

According to Glenn Carter, a Canadian investor who works for Condo Capital "The problem is a foreign credit score does not count for anything, it's just like having no credit score”. This means the interest rates you’ll be quoted will be that of someone with no credit. But a bank with presence in your home country will offer favorable rates. "The interest rate I was quoted from a US Bank was 9%, versus the 3% we got from a Canadian bank with branches in the US.” Carter says.

3. Get an Agreement in Principle

Before signing any contracts or paying deposit, get an Agreement in Principle. Learn more about Agreements in Principle. If you're planning on getting finance on the house, make sure this is explained in the contract, and seek an 'opt-out clause' if the loan is not agreed. This will ensure any first deposit paid is refunded.

What’s the crucial thing when making an investment? Simple! Protect your investment. Whether you’re buying stocks or putting money down on real estate? Whether you are buying property abroad or locally? Whether you are buying overseas property for investment or just looking to relocate? You need to recognize that there are risks. Heck, buying property abroad is like running a hurdle. You’re crossing hurdles like investment restriction laws, taxation, paperwork, exchange rate changes etc. Real estate investing comes at a risk, especially when you are going into relatively uncharted territories. You need to ask yourself some crucial questions.

1.     WHY AM I BUYING THE PROPERTY?

Any decision you take subsequently will depend on this to an extent. Are you buying just to relocate or as an investor. You need to make up your mind. Your choice of mortgage, your budget and the type of insurance you go for would depend on this.

It’s easy to say I’ll move into the property for some time, get a feel of the place for a while then I’ll sell out when the market is steamy. Seems like a good strategy but guess what? Your guess may be wrong? You may have to stay with a property you don’t like for years or just bear the big loss. Hence you need to make up your mind beforehand. Am I relocating or investing?

2.     HOW WILL I GET FINANCING?

Financing is a big deal when it comes to buying property abroad. You can’t just carry cash around, you need to select a reputable bank in your destination to deal with. If mortgages are available by the destination bank, you need to ascertain what types of mortgages are available and what contingencies. In a case where a deposit is required by your seller, make sure that an ‘opt out clause’ is signed to make sure your deposit will be returned in case the mortgage falls through.

3.     SHOULD I BUY A NEW BUILD PROPERTY?

If you are buying a new construction or an off-plan property, be sure to choose the developer carefully. Ask a lot of questions. Initially, focus these questions on the agent or company itself, not the properties. Ask about customer testimonials and check what is included in their service. Ask for details in writing. You might be tempted to make a deposit on an attractive new-build property right away. Cool down and think before you leap.

4.     WHAT ABOUT RENTAL YIELDS?

Property specialists caution against getting sucked in by claims of developers. ‘There is huge capital growth’, ‘rental yields are off the roof’ etc.  Always remember: with big returns come big risks.

Don't just think about the profit to be made. Put some effort into your calculations and note that interest rates change over time, also include the tax implications of renting out your property abroad.  You should consult a tax expert or lawyer.

5.     WHAT WOULD BE THE ADDITIONAL COSTS?

Budget for extra costs to be between 8 - 10 % of the house value. This may often be far more in a few countries. Make sure you are, therefore, alert to the costs incurred for investing in a property in your selected country.

Whether you want to relocate abroad or create a global real estate investment portfolio, it's important to keep in mind that even the best strategies occasionally fall flat. You are going to therefore need an appropriate contingency plan and exit strategy, as this will lessen any inconvenience triggered and the prospect of financial loss. Hence, for those wanting to relocate, it is important to hold on to ties in your country of origin and ideally preserve a preexisting property for a predetermined time frame. Investors will also have to keep a keen eye on the global market and prevailing economic trends, as these factors may determine the necessity to sell or change strategy.

This article explores seven basic reasons why people nurture the dream of owning foreign property

The ebbs and flows of foreign property rules in many countries have caused an influx of foreign buyers into their real estate markets. The current trend is that many countries are more accepting of foreign property buyers, unlike before. In some countries, like Australia, it is becoming a malaise, where the overpowering of foreign currency is causing an affordability crisis for residents. Hopefully, this would balance out soon. But, the fact still remains that more people are drawn to global property. In many cases, when countries have modified their laws to be more accommodating to foreign buyers, there have been real estate boom. The historical constitutional change of Thailand's foreign property laws in 1979 brought an influx of foreign investors and few months later, Thailand began experiencing its first real estate boom.

Motivations For Buying Property Abroad

It's not just about wanting to fulfill the lust for adventure. Recently, there have been an increased number of British buying foreign properties. Many of them buy for many reasons, let's just examine three:

·         Cost. Will you buy a house in Britain if you can buy two houses for the same price in Brazil? The principal motivation is pricing. The appeal of buying property abroad lies in the fact that you can buy a home conveniently and still have enough money left to have a whale of a time in your chosen country. For most people, cost is the strong motivation for buying overseas.

·         Possibility of an investment. Some property investment hotspots abroad are experiencing influx of foreign buyers. While these areas may not be the first choice for people who want to slash price in half; it is a catch for those who are seeking investment opportunities.

·         Second home. A personal reason for buying property abroad is to own a vacation property. For many affluent individuals, having a place, maybe a seaside location in Turkey to retire from the hustle and bustle, is important. With lower cost of living and interesting destinations, expats can live the good life abroad. These vacation properties also offer sound return on investment.

Benefits Of Buying Property Abroad

Broadly speaking, let's take a quick look at the 7 benefits of buying property abroad:

1.      Diversify your portfolio.

Buying property abroad is a great way to diversify your portfolio. Having all your investments, stocks and all, in your country of Birth, is like putting your eggs in one basket. Also, you can invest in a hard asset, real estate, which is proven to be more reliable than stocks.

2.      Diversify currency. Having all your investments denominated, in your local currency, is also 'putting your eggs in one basket'. You don't want to be at the mercy of the local economy.

3.      Reinvent your life. Apart from building your net worth, owning a home abroad is a way to gain a rich cultural diversity and more momentum, especially during retirement.

4.      Own a second home.  Instead of spending your life savings on a second home, buying a second home abroad can be 5 times cheaper. There could also be a chance to make good vacation rental income as your vacation home increases in value.

5.      Retire overseas. You can take advantage of the low cost of living abroad to enjoy your retirement.

6.      Tax deductible travel. In the US, the cost of traveling to manage your overseas property is tax-deductible.

7.      Earn income. A rental income overseas will generate an income that is not determined by your citizenship country's economy. For instance, rental returns in Medellin, Colombia can be up to 10% and the cost of property ownership there is low.

Buying property abroad is a smart move. But, anybody who wants to take the plunge must be ready to put in work. Don't just expect to sit and wait for your property to grow in value. An investment in real estate requires active and ongoing management.