The Challenges of International Homebuying

Think we have it tough with difficult bank approvals and credit score requirements? Buying a house in the U.S. can be a breeze compared to what it’s like in other countries.

Cash is king

In many countries, mortgages are nonexistent or represent a small percentage of home purchases. That can put Americans who are used to being able to make a small down payment and finance the rest of the home price at a disadvantage.

“Borrowers first need to realize that many countries don’t even have mortgage lenders,” said Kathleen Peddicord, founder of Panama City-based Live and Invest Overseas, in the Wall Street Journal. “In Europe, there’s a more sophisticated, competitive lending industry, but in Latin America, there’s not.”

In countries that do offer mortgages, they are often shorter term. “Thirty-year fixed-rate mortgages are virtually unknown in other countries, with the standard being an adjustable-rate mortgage with a 20- to 25-year total term,” she added.

Perhaps most challenging: “Most U.S. banks won’t lend for purchases outside the country,” so buyers who are seeking financing need to find other options.

Buying properties all cash in the U.S. is a growing trend—especially among foreign buyers. But in many other countries, cash purchases are simply standard procedure.

“To figure out what you can afford overseas, assume you can pay cash only,” said CNN Money. “In many countries, such as Mexico, Greece, Spain and Eastern Europe, transferring property is historically paid for in cash.

If you can’t afford to buy property without a mortgage, you’ll want to check out English-speaking countries and former colonies like Singapore, Hong Kong or South Africa. But even then, you should be prepared to put down at least a 40 percent.”

Buying at auction

Enamored with the “soaring mountainscapes, mysterious lakes and rivers, dramatic volcanic plateau, vast open plains, braided rivers, thermal wonderlands, fiords, native forests, glaciers, miles of farmland and even more miles of glorious coastline with gorgeous sandy beaches” of New Zealand? Who could blame you? But if you’re looking to buy a house here, prepare yourself for a different process than you’re used to. While traditional sales do exist, many homes in the country are sold by auction, and nailing down the sales price may also be a challenge.

“There can be significant variations in property values from one property to another within the same street, let alone within the same suburb, town or city,” said Working in New Zealand.

Understanding the market

U.S. buyers depend on market data to be able to make smart choices about real estate. But in many countries, there isn’t much to go on.

“Truth is, in the absence of reliable statistics in many foreign real estate markets, it can be difficult to distinguish a good deal from a poor one,” said Claudia Gonella, co-founder of Reveal Real Estate in World Property Journal. “You won’t be able to get hold of data such as market comps, days on the market or price trends that investors use to drive their investing strategies in more mature markets. You’ll only be able to cultivate a good nose for value by carefully triangulating information you receive from different sources; talking to everyone you meet about the property market (without taking everything you hear at face value) and (ideally) building your own spreadsheet of comparative prices.”

Places that don’t encourage homebuying

It might be that the difficulty in purchasing a property oversees is due to the economic climate of that country. Smaller or unstable countries may not have the finances in place to encourage homebuying. Or, in the case of countries like Germany, there simply isn’t enough incentive to buy.

“Unlike high-homeownership countries like Spain, Ireland and the US, Germany doesn’t let homeowners deduct mortgage-interest payments from their taxes. Without that deduction, the benefits of owning and renting are more evenly balanced,” said CEB. “Those regulations, a solid supply of rental housing, and the fact that German property prices historically rise very slowly mean German rents don’t rise very fast. And because one of the main reasons to buy a home is to hedge against rising rents, the tendency of German rents to rise slowly results in fewer homebuyers and a lower homeownership rate.”

Your money is not welcome here

In some countries, Americans may not be allowed by law to purchase property.

“It’s critical to ensure your chosen country gives you the legal right to buy,” said The Telegraph. “Research this before handing over any money in order to avoid scams or disappointment. Other essential homework should include checking the currency exchange rate and stability in the country you wish to make a purchase.”

Thinking about picking up and buying in another country? Huffington Post has some good tips for becoming an expatriate.