Can You Use a Home Equity Loan or HELOC for a Foreign Property?

If you’re in the market to buy your dream foreign property, you may consider funding the purchase with your home equity. 

Using home equity may be more convenient, offer better terms, and allow you to purchase property in areas where local lending isn’t strong. It also essentially makes you a cash buyer, strengthening your negotiating power. 

We’ll take a deep dive into your options to help you make the right decision for your situation. 

In this guide:

• Why use a HELOC or home equity loan for overseas property?
• When not to use a HELOC or home equity loan to buy foreign property
• How to use a home equity loan or HELOC for foreign property
• Alternatives

Why use a HELOC or home equity loan for overseas property?

The benefits of using a HELOC or home equity loan for acquiring property overseas include the following.

Better financing terms

If you can obtain a foreign mortgage, you may find the terms are less favorable than you’re used to in your home country. Interest rates are higher, and terms are often shorter, resulting in higher payments. 

Down payments also tend to be higher. 

You can keep your home

Using home equity to buy another house means both loans are tied to your primary residence, and you get two properties. 

Familiarity with your local financing

Using a HELOC or home equity loan for foreign property means you won’t have to navigate another country’s banking system, which can be much different from what you’re used to.  

Flexible and easy to use

You can use home equity loans and HELOCs for a wide variety of purchases, including real estate. 

You’re essentially a cash buyer

Cash buyers may be able to negotiate from a position of strength, allowing them to close the transaction quickly or get a better price for paying cash.  

Overseas mortgages may be unavailable or difficult to get

Getting a mortgage from a foreign bank can be challenging. You may also find it difficult to protect yourself from fraud. 

>>Read more: Home equity loan and HELOC requirements

When it doesn’t make sense to use a HELOC or home equity loan to buy foreign property

Using your home equity to purchase foreign property isn’t your only option. Using home equity for foreign property doesn’t make sense in several scenarios. 

If local mortgages are easy to get 

If you want to purchase foreign property in an established market with secure banking systems, you’ll have options. 

You may be surprised to find that a bank from your own country can finance the purchase of foreign property.

If you can’t get enough out of your home equity to purchase the property

If you don’t have sufficient equity in your property, you’ll need to find another way to finance the purchase. 

If you don’t want to put your primary home at risk

HELOCs and home equity loans offer the lowest interest rates for a reason: They’re secured by your home. 

So you risk foreclosure on your primary home if you can’t make payments. If you don’t want to put your home at risk, look for other options for financing foreign property. 

If the country restricts the sale of foreign property

You’ve likely done your homework, but it bears mentioning that certain countries don’t allow foreigners to buy property. 

In New Zealand, for example, only residents or citizens can purchase property. So before you take out a home equity loan, be sure you know local laws.  

How to use a home equity loan or HELOC for foreign property

The steps to obtain a home equity loan or a HELOC will look similar to this:

1. Obtain loan estimates from several lenders to comparison shop. 
2. Go through the home equity loan or HELOC application process.
3. Get a property appraisal.
4. Get approval from underwriting.
5. Close on your loan and receive the funds.

For the best odds of approval, ensure you have substantial equity in your home, a healthy credit score, and adequate debt and income levels. 

Getting a home equity loan or HELOC often takes less time than a first mortgage. You can expect to complete the process anywhere from two weeks to two months. 

Applying for a home equity loan or a HELOC is essentially the same, so before applying, you should know which is best for your needs.

Home equity loan	HELOC
Lump sum disbursed all at once	Flexible amount to borrow, up to an approved amount
Most have fixed interest rates	Many have variable interest rates, sometimes with low introductory rates
Repayments start immediately	Only pay when you borrow
Uses home as collateral for the loan	Uses home as collateral for the loan

Home equity loan

A home equity loan lends you money against the equity in your home. The lender assesses your home’s market value and equity to determine how much you can borrow. 

It also considers your debt, income, and credit history. 

With a home equity loan, funds are disbursed all upfront. The loan often offers a fixed interest rate and has a predictable, stable repayment schedule. 

HELOC

A home equity line of credit is similar to a home equity loan, but the amount you borrow is more flexible. 

You get approved up to a certain amount, often with a variable interest rate. You can withdraw money as needed. HELOCs sometimes offer low introductory APRs or a draw period with interest-only repayment. 

Deciding between a home equity loan and HELOC may depend on how you plan to use the money:

• Do you know exactly how much you need so you can get a lump sum with a home equity loan? Would you prefer the flexibility of a HELOC?
• Consider the maintenance costs of a foreign property if you plan to use a home equity loan or HELOC for those charges.

Alternatives to a HELOC or home equity loan for overseas property purchase

If you’re unsure about using your home equity to finance an overseas property, consider your other options. 

Obtain an overseas mortgage with a local lender

A lender in your own country may be able to provide a mortgage for an overseas property. 

Check whether the lender can give you a loan in the location where you’re buying the property because your lender won’t finance a loan for properties in certain countries and territories. 

Ensure your lender understands the local customs and regulations, foreign ownership rules, tax laws, and insurance. 

Obtain a mortgage from a foreign lender

A lender in the country in which you’re purchasing the property may be able to help you buy a home. 

It might be more familiar with the market and help with local laws and customs.  

Pay cash

Paying cash for an overseas property can eliminate hassle. If you’re considering this direction, a cash-out refinance on your primary residence may get you the money you need to buy a foreign property and leave you with a single loan. 

Use a personal loan

Using a personal loan to pay for foreign property may come with a higher interest rate, but your primary residence doesn’t secure this type of loan. 

Note: You may be limited in how much you can borrow. 

Seller financing

You may find opportunities to take advantage of seller financing in foreign countries—in particular, from developers looking to sell properties to overseas buyers. 

Retirement savings

It is possible to use retirement savings to pay for real estate by taking a loan against your retirement account or withdrawing money and accepting the penalty. 

However, you may face the following:

• Reduction in tax-deferred compounding savings or growth on withdrawals
• Tax consequences for withdrawing from your retirement account
• Immediate repayment schedule in an employer’s plan (and subject to full repayment if you leave the job for any reason before repaying the loan)
• Potential waiting period before you can contribute again if you take a loan from your employer’s plan and are still working
• Risk to your retirement income