Does Your Retirement Plan Include an Out-of-Country Relocation? What Are Your Financing Options?

Whether you've always dreamed of spending your golden years on a sunny beach in the South Pacific or simply want to take advantage of how much farther your nest egg can stretch in an economy with a more favorable currency exchange, you may be wondering how to go about purchasing a piece of foreign real estate in anticipation of your impending retirement. Read on to learn more about the factors you'll need to consider when financing and purchasing your next property outside the US borders.

How will your foreign real estate purchase be financed?

Even if you have the liquidity to pay cash for your foreign home, there can be some financial and logistical factors in favor of financing. On the other hand, depending upon the country you've chosen as your retirement destination, you—as an immigrant—may be legally prohibited from even owning property, let alone financing it, until or unless you become a citizen. Before you've begun to browse houses, it's crucial to do some research to see whether your retirement destination will require you to rent rather than own.

If you've established that purchasing should not be a problem, you'll then want to investigate your bank financing options. Those accustomed to home shopping in the US may be surprised at the relative dearth of choices—even in English-speaking countries with similar consumer economies (like Canada), home loans can look much different from the traditional 30-year fixed rate mortgage. In many cases, seller or developer financing will be your most attractive option short of paying the entire purchase price in cash. 

Seller financing (or "carry-back" financing) involves the sale of a home for a stated price, with payments made to the seller rather than to a mortgage-holding bank. Much like land contracts or rent-to-own arrangements in the US, seller financing in foreign countries vests title to the property in the seller until the loan is fully paid—which can put you at risk if the seller owes money on this property and fails to make the necessary payments to keep the property from falling into foreclosure.

However, if you choose to purchase only from sellers who aren't already carrying a mortgage on the property or who will grant you permission to make all necessary payments (like property taxes or utilities) yourself, your risk is significantly lessened. 

Developer financing, like seller financing, requires you to take a loan directly from the developer who built your home, making payments to (and being subject to foreclosure by) the developer rather than a third-party bank. Depending upon the popularity of the area and the ease with which the developer is able to solicit potential buyers, you could find that the financing options offered are quite favorable.