Borrowing To Buy Overseas
Nowhere in the world has it ever been as easy to borrow money to buy real estate as it has been in the United States of America over the past decade. You could borrow more than the cost of the property you were buying, even, with a fixed rate of interest and a nice, long repayment term.
During this time, as a result, the easiest way for an American to source capital to purchase real estate anywhere in the world has been to borrow it at home. Pull equity out of his U.S. property. Or simply find some U.S.-based outfit willing to lend him money for property purchase elsewhere.
One consequence of this easy credit market in the States has been that it hasn’t mattered that financing is nowhere else in the world as easy to come by…especially if you’re a foreign buyer.
That is to say, over the past decade, as property markets worldwide have heated up and, in some cases, bubbled over, Americans have been able to participate by bringing their cash with them.
Those days are over. Good luck these days finding a lender in the States to write you a loan to go buy a beachfront lot in Nicaragua or a condo in Panama City.
Again, the markets we deal in operate on cash, with very limited exceptions. If you can’t bring it with you from back home, you do have options…but not many and not always good ones.
In Europe, you can borrow locally as a foreign buyer. Lending criteria have always been more conservative than in the States…and continue to be. And the product line is more limited.
Adjustable-rate mortgages, not fixed, are the norm.
Best case, the lender might give you 20 or 25 years to repay. No such thing, really, in Euro-land as a 30-year loan.
And you’re going to be required to get local life insurance for the entire term of the mortgage. In the U.S., you can get life insurance until age 100. In most of the rest of the world, you probably won’t find anyone willing to write you a policy past age 75. Meaning that, if you’re 65 when you apply for a mortgage, you’re looking at a repayment term of 10 years.
Straight up, you aren’t going to be able to borrow to buy real estate in Asia as a foreigner. On the other hand, in many markets in this part of the world, you aren’t going to be able to own real estate as a foreigner anyway…so it’s not really an issue.
Which brings us back to the Americas. The property bubbles of the past decade in Costa Rica, Nicaragua, Panama City, and elsewhere have been fueled largely by Americans either speculating or buying retirement and second homes with money borrowed in the States.
Now that that source of funding has evaporated, what are your options in Central and South America?
Developer financing, which is increasingly a possibility, as developers in this part of the world are hungrier and hungrier, month by month, to stimulate sales. I know developers in Costa Rica, Nicaragua, Honduras, Belize, and Uruguay, for example, who are more open to carrying back part of your purchase price than ever before in the 25 years I’ve been covering this beat.
In these markets today, make an offer…and ask if the developer is willing to discuss terms. The answer should be yes.
Your other option is to borrow locally…which is not possible across Latin America, certainly, but in particular markets, yes.
You aren’t going to borrow locally in Nicaragua. Or Honduras. Or Argentina.
Caye Bank in Belize might lend to you…to buy not only in Belize, but elsewhere, as well.
And, in Panama, yes, it’s possible to borrow locally as a foreigner, as we discussed with attendees at our Live & Invest in Panama Conference last week.
However, again, understand, the lending industry in Panama does not operate in the same way as the lending industry in the States. You can’t walk into any bank and ask for a loan application.
Two banks operating in Panama that will lend to foreigners interested in purchasing real estate in this country are HSBC and Scotiabank. Again, the rates are variable, not fixed. The terms are, typically, 5 to 15, maybe 20 years. And, again, you’ll be required to purchase life insurance for the entire term of the loan (which can be a very restrictive requirement, depending on your age at the time you make the application).