Can You Get A Mortgage To Buy Property Overseas?
At this week’s Offshore Wealth Summit, the three dozen speakers and exhibitors, including myself, answered thousands of questions… some in the room and some one-on-one during the coffee breaks and cocktail parties.
Here are a few questions I fielded that I think make important points…
I’m an American, but, if I have a second citizenship, can I use that passport to open a bank account overseas?
You can try.
However, if you were born in the United States, your place of birth will be indicated on your second passport. When a banker takes a look at that passport and sees you were born in the States, he’s going to ask for your U.S. passport.
Most all banks around the world are, at this point, complying with FATCA requirements and restrictions, meaning they are either reporting details to the IRS for all American account holders or they are not allowing American account holders. Practically and realistically speaking, those are the only two options available.
Maybe you weren’t born in the United States. Still, any bank is also going to ask for proof of address. If you’re living in the United States, that’ll tip them off.
If you weren’t born in the United States and you’re not currently living there, then the bank likely won’t ask you if you’re a U.S. citizen or resident… and could, in this case, open an account using your second passport and non-U.S. address. However, if you’re an American citizen or Green Card holder, you are obligated to file a U.S. tax return and report any offshore bank accounts.
If you don’t have US$10,000 or more in financial accounts outside the United States, you still must check the box on Schedule B indicating that you have an offshore account. If you do have US$10,000 or more in financial accounts outside of the States, you’ll need to file the FBAR (FinCEN form 114), as well.
Bottom line, if you are a U.S. tax person, it doesn’t matter what passport you use when opening an offshore bank account. You have the reporting requirement(s) regardless.
Do I need to have residency in a country to own property there?
The attendee asking this question wanted to invest in properties in two or three countries and split time among those places but was concerned that that would require her to become a resident in every one of those countries… which seemed like more than she was up for.
I assured this attendee that she needn’t worry. Some countries place restrictions on foreign property buyers, but no country that we know of requires you to be a resident to buy property.
That is, residency is not normally (we believe not ever) a requirement of buying property… though in some cases some restrictions are placed on what, specifically, foreigners can buy.
On the other hand, many countries provide opportunities for you to obtain a residency permit by investing in property in the country, and some offer quick paths to citizenship to property investors.
For example, in Colombia, if you invest about US$170,000 (at today’s exchange rate) in a piece of property, you are eligible to apply for residency. Portugal has a program that allows you to invest as little as 280,000 euros to qualify for residency. Ecuador’s real-estate-for-residency program requires an investment of just US$25,000.
Can I get a mortgage to buy property in another country?
This question ties to the previous one, as you’ll have a better chance of getting a mortgage in countries where mortgage financing is available if you are a legal resident of that country.
Nicaragua is an example of a country where banks will lend to you as a foreign property buyer (if you qualify for the loan) as long as you are a resident.
Banks in the Dominican Republic will lend to nonresident foreigners, and some Panama banks sometimes lend to nonresident foreign buyers.
Right now, French banks are beginning to lend to nonresident foreigners again; they had pulled back on this post-2008.
Getting a mortgage overseas and liking the terms, however, are two different things.
In most of the world, bank loans come with variable (not fixed) rates… and those rates are higher than Americans and Canadians are used to. In Panama, you’re looking at 6% to 7%. In the Dominican Republic, U.S. dollar rates are in the 8% range, while DR peso interest rates are double digits.
Few banks outside the States offer loans with 30-year terms; 20 to 25 years is typical. The term can be shorter depending on your age, as banks in many countries won’t lend beyond the age of 70 or 75. In other words, if you’re 65 at the time you apply for a loan, the longest term you can expect is 10 years.
Also note that many countries require local life insurance of any borrower, enough to pay off the loan in case you die before it’s been paid in full.
If you’re an older buyer, the added cost of life insurance and the shorter amortization period can make the idea of a mortgage… even if you qualify… unattractive.
What’s the best way to take title to a piece of property overseas?
Depends on your situation.
One general rule is to put offshore assets in offshore entities and onshore (U.S.) assets in U.S. entities.
But which offshore entity, specifically?
An LLC is typically the best choice, and many jurisdictions offer LLCs.
The benefits of using an LLC to hold property you own overseas are asset protection and, if you do it correctly, probate mitigation.
However, it’s possible in most cases—and can be simpler and less expensive—to hold property in your own name. Doing so means your heirs will face probate in the country where the property is located when you kick the bucket, but maybe you don’t care about that.
Or maybe the value of the property isn’t worth the costs of setting up and maintaining an entity.
Deciding whether to take title in a structure or your personal name comes down to analyzing your personal big-picture agendas and goals.
If you’re planning to purchase just one piece of property overseas and aren’t worried about your heirs having to hassle with probate, holding title in your personal name can be the easiest and best option.
If you’re an investor building a portfolio of properties in multiple countries, you probably want to invest in a central holding structure.