There are lots of reasons why you might consider buying a home overseas. Perhaps you’ve found the ultimate vacation spot and you want a permanent place to park your stuff. Or maybe the idea of spending your golden years someplace warm and sunny appeals to you. Either way, buying property in a foreign country is going to be a different experience than buying a place on your home turf. Before you fall in love with that Italian villa or a Mexican hacienda, there are a few things to take into account. You may want to meet with a financial advisor to discuss the specifics of your situation.
1. What’s the Cost of Living in Your New Country?
Moving overseas can benefit your bottom line if you pick an area that has a low cost of living. On the flip side, if you want to buy a home in a location where necessities like food, transportation and medical care are much more expensive than they are in your current city, moving abroad might not make sense.
As you’re scouting out properties, it’s a good idea to learn more about how the cost of living in those areas compares to what you’re currently paying. That way, you can plan ahead and budget accordingly.
2. What Are the Ownership Laws in Your New Country?
Individual countries have the right to place restrictions on non-citizens who want to own properties. Even if the country you’re interested in allows foreigners to buy homes, you may be required to obtain special residence permits or register with a government agency before you can complete a home purchase.
If you don’t know what a particular country’s rules are, you can always contact a real estate attorney who knows how to execute foreign transactions. After all, you don’t want to find out that you can’t legally own a home abroad after you’ve already moved in.
3. How Will You Finance Your New Home?
One of the trickiest aspects of buying a home overseas is figuring out the financing. If you’re planning to go through a foreign bank to get a mortgage, be prepared to shell out a big down payment and potentially pay a high interest rate. You may even be required to purchase a separate life insurance policy so that your mortgage can be paid off in the event that something happens to you.
If you don’t want to deal with financing an overseas home, you could consider using cash to pay for it. You could use a home equity line of credit as your source of cash. But then you’d be putting your primary residence on the line if you can’t make the payments.
If you need fast cash, you could also consider tapping into your self-directed IRA. But you wouldn’t be able to live in your new home. So unless you’re satisfied with using the house you’re buying abroad as an investment property, you’ll probably have to look into other options.
4. What Will Your Tax Liability Be?
Before moving into a foreign country, it’s best to consider any tax rules that might apply. It’s not uncommon to be charged taxes when you buy a home and again when you sell it. There may also be ongoing tax payments that you’ll need to make throughout the year, similar to U.S. property taxes.
Bottom line: Before you commit to buying a house overseas, you’ll need to know how it’ll affect your tax situation.
5. What’s Your Exit Strategy for Leaving Your Current Home?
Buying a home abroad may seem like a dream come true until you’re ready to unload it. In certain countries, homes can stay on the market for months or even years. Factoring in local market conditions as you develop your exit strategy can ensure that you don’t get stuck with a house long after you’re ready to move on.
Before buying a home overseas, it’s important to be aware of your legal rights and obligations. Putting together a home buying team that includes a real estate attorney, a real estate agent and a mortgage lender is really important. Each of these professionals are familiar with the ins and outs of foreign real estate purchases. This level of insight will be incredibly important as you enter a new country and culture.
Tips for Buying a Home
- When you buy a home, it’s important to ensure it’s accounted for in your long-term financial plan. A financial advisor can help you do this. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Whether you’re buying a home overseas or in the U.S., you’ll need to do quite a bit of research beforehand. This is imperative if you want to ensure you can actually afford the homes you’re looking into. Use SmartAsset’s home affordability calculator to get started.
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