Forget Maine or Montana. Here's How To Get a Mortgage in Marrakech

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One of the biggest advantages of American homeownership, however, knows no boundaries—the U.S. tax write-off. The IRS will let you deduct the mortgage interest on your primary and second home, no matter where it is located, explains CPA Ken Weir, of Ken Weir & Associates, in Bakersfield, California. " As long as it meets all the requirements for being either your primary or secondary residence, it's OK. The IRS will let you write off the interest on two qualifying residences (up to a $1 million), regardless of where they are."

Assembling the paperwork and preparing it in a way that the IRS will find acceptable may take a bit more time, he adds. After all, it might have to be translated into English, and all the money involved, especially the mortgage interest you paid, will have to be converted into American funds. Weir suggests that you check with your own tax preparer.

While the value of the American dollar can be a major incentive for buying in a foreign country, there are some headaches and extra paperwork involved. In some countries, such as Mexico, there are laws regulating what kinds of property non-citizens can buy and the areas where those properties are located. For example, non-citizen individuals cannot own beachfront property. But don't worry; you can overcome most problems once you have found the house, cabin, cabana, or chalet of your dreams with persistence, patience, and the right mortgage lender. You do have to make sure, however, that you find real estate agents and lenders familiar with the rules about non-residents buying property in their countries. While this is fairly easy to do in Mexico and Canada, it might be more challenging in other parts of the world. You might check with the U.S. embassy in the country where you want to buy.

Peter Miller, owner of Emerald Mortgages in Vancouver, British Columbia, says he routinely deals with Americans buying homes throughout Canada. He points out that the requirements for getting a mortgage are pretty much the same all over the world. First, you need an appraisal to prove that the property you want to buy is worth the money you are paying for it. Then you have to prove your creditworthiness to the lender, and show you will be able to make the monthly payments.

" I work with Equifax up here in Canada and I've always been able to get a hold of the credit reports for any of the Americans I am working with," he explains. There can be extra costs involved in getting a credit report sent internationally and, depending upon the country you are looking at and the language spoken, you might also have to pay for a translation. But the growth of the Internet makes it a lot easier today than it was even 10 years ago. Extra effort might be required to prove that you'll be able to make the monthly payments. As in the States, lenders will usually want to see proof of employment and, in many cases, income tax statements.

Many Americans assume that interest rates will be the same all over the world, which is a mistake. Sometimes they are, but sometimes they are not. Miller says that Canadian mortgage interest rates are comparable to those in the U.S. A check on loan rates south of the border, however, shows Mexican mortgage interest rates are currently closer to 16 percent than to 6 percent. They can even hit 17 percent.

Another aspect of buying in a foreign country that shocks many Americans is the size of the required down payment. To buy a house in Canada, Miller says, " A 25 percent down payment is standard. It is possible to get into a house with only a 20 percent down payment, but the interest rates will be higher." Aside from that, Canadian requirements are generally similar to the U.S. and the entire transaction can be done in English. The one exception is in French-speaking Quebec, where provincial law requires that legal documents be written in French.

In Mexico, everything has to be done in Spanish, and buying a house there often requires a 50 or 60 percent down payment as well as a 16 percent interest rate. Mexican mortgages are normally for 15 years, not 30, thereby increasing the size of the monthly payment. Still, many lenders routinely deal with Americans, especially in Guadalajara, which has more American residents--mostly retirees--than any other part of Mexico. Retiring outside the country could require you to pay both U.S. and country-of-residence taxes, but the IRS will quite often let you deduct any foreign taxes you pay from what you owe in the U.S. Once again, talk it over with your tax preparer or financial advisor before you decide to move.

One of the major reasons so many people want to retire or at least spend part of the year in Mexico and other foreign countries is the cost of living. Although currency prices vary from day to day, for $150,000 U.S. you could expect to buy a house in Canada listed for $197,000 Canadian. Take that same $150,000 to Mexico and you could buy a house listed for 1.7 million Mexican pesos. To get today's current rate for any currency in the world, go online to http://www.xe.com/.

So go ahead and dream of having a vacation or retirement home in Mexico City, Montreal, Marrakech, or anyplace else in the world outside the borders of the U.S.A. Not only is it possible, the IRS may help make it more affordable.