The news in the United States says times are difficult for home buyers right now… for both first-time buyers and those moving to a new home.
Prices are still strong in most markets (although they’re down by double-digit percentages in some markets like San Francisco), and mortgage rates are still high (although they’ve dropped below 7%).
Is it harder today for an American to buy their first house than it was more than 25 years ago when I bought my first property in the States?
Maybe.
However, the United States is still the easiest place to get on the property ladder thanks to the ubiquitous 30-year fixed-rate mortgages and the secondary market for mortgages that get packed and sold through Fannie Mae and Freddie Mac.
The U.S. mortgage industry is a factory industry. Banks hold to term a small percentage of the loans they give out.
Of course, interest rates and property prices play a role in one’s ability to get approved for a mortgage…
The answer for most buyers is to buy something smaller and less expensive and then move up or refinance when interest rates go down further.
That’s the beauty of the 30-year fixed-rate mortgage.
The borrower has no risk once the deal is done. The risk is with the lender, but the lender sells that risk to the secondary market.
Again, it’s an industry.
Elsewhere in the world, finding a 30-year fixed-rate mortgage is a challenge.
Either it will be harder to qualify in the first place and you’ll need a substantial down payment (Germany, for example), or you’ll be looking at a fixed rate for a short period before it converts to a variable rate.
Plus, the term will likely be only 20 to 25 years (or up to ages 70 to 75).
The other aspect of the U.S. mortgage market that you don’t find in most other countries is the ease of pulling equity out of your property, either through a cash out refinance or a home equity loan or line of credit.
We tried to do a cash out refinance of one of our apartments in France a few years ago and found only one bank that would consider the idea.
However, they wanted a full description of what the funds were going to be used for. They weren’t going to give a loan for us to buy a car or take a vacation (like so many people in the States do with their home equity loans).
That’s smart for both the bank and the property owner.
While it’s easy in the United States to refinance and pull out cash, it’s not usually a smart money move unless you’re using the cash for another investment.
The good news is that while it’s difficult to get a mortgage overseas, especially as a non-resident foreigner of the country you’re buying in, it is possible in some markets.
You’ll need to have a large down payment (think at least 30% to 40%) and prove solid income-to-debt ratios for a foreign bank to give you a mortgage.
Or you can pull cash out of your U.S. property to make that purchase overseas.
As you roll into 2024, consider when diversifying your property portfolio overseas if you should sell something in the United States or just pull out some equity, even at the current interest rates.
With the ease of refinancing in the States, the bank is taking the long-term risk from an interest rate perspective.
Stay diversified,
Lief Simon
Director, Overseas Property Alert