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5 Things to Consider Before Buying a Home Overseas

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, here are five things to take into account.

Find out now: How much house can I afford?

1. The Cost of Living

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. Foreign Ownership Laws

5 Things to Consider Before Buying a Home Overseas

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.

Related Article: Do You Need a Real Estate Lawyer?

3. Financing

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 a home purchase overseas, you could consider using cash to pay for your house. 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. Your Tax Liability

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.

Check out our federal income tax calculator.

5. Your Exit Strategy

5 Things to Consider Before Buying a Home Overseas

Buying a vacation home or a retirement 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.

Final Word

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 who are familiar with the ins and outs of foreign real estate purchases can help the process go more smoothly.

You should also be sure you fully understand how this investment fits in with your larger financial plan and will impact your budget, both of which a financial advisor can offer guidance on. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: ©iStock.com/KucherAV, ©iStock.com/Just_One_Pic, ©iStock.com/IPGGutenbergUKLtd

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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