If you are living and working overseas, you can still get a home loan in Australia. Find out everything you need to know about Australian expat home loans.
How Do Expat Home Loans Work?
If you are an Australian citizen or permanent resident and you live overseas, you can take out a mortgage for up to 90% of the property value. If you are an Australian citizen living in New Zealand and want to buy an investment property, you can get a 90% LVR loan.
For self-employed borrowers, things work a little differently. You’ll be able to purchase a property in Australia when you live and work abroad buy you’ll only be able to borrow 80% of the property value and you'll have to include plenty of documentation to verify your income. Some lenders will only let you borrow 70% when you are self-employed.
Keep in mind, not all lenders will have the same flexibility for expat home loans. Some will have strict lending criteria while others will want to see higher deposits for some borrowers. We also work with lenders who make interest rate discounts available to overseas borrowers. You do have options as an expat, you just have to know where to look.
General Restrictions on Australian Mortgages for Expats
There are several factors you should know about that will impact your ability to qualify when you apply for a mortgage:
- If you earn a foreign business income, only a small number of lenders will approve your mortgage application.
- The currency of your income also matters – different banks accept different currencies.
- Because some lenders allow for large exchange rate variations, your borrowing power could be far less than you expect.
- If you are married to a foreign citizen, some lenders will deny your application.
- A lender may use Australian tax rates rather than the tax rate of the country you live in, which can limit your borrowing power.
- Most banks will expect you to have a Power of Attorney (POA) set up with someone in Australia.
Which Currencies Do Banks Accept?
The more common the currency, the more options you’ll have when choosing lenders. The following are the currencies most banks will accept from Australian borrowers who live overseas:
- Euro (EUR)
- United States Dollar (USD)
- Great Britain Pound Sterling (GBP)
- Canadian Dollar (CAD)
- Hong Kong Dollar (HKD)
- Swiss Franc (CHF)
- Singapore Dollar (SGD)
- New Zealand Dollar (NZD)
- Japanese Yen (JPY)
- Chinese Renminbi (CNY)
We can help you find lenders who will accept other currencies. There are some that will but they may have extra restrictions such as no low deposit loans and high borrowing standards for income, credit, and asset ratios. You’ll also likely have to pay LMI. With foreign currencies, banks also tend to change their policies periodically.
If you aren’t sure if the currency of your income will be accepted, call us on (07) 3146 5732. We can help.
Do Expats Have to Pay Higher Interest Rates?
As an overseas borrower, you do present more risk to banks. This is why you’re likely to have to pay LMI as an expat unless you have a large deposit. Living overseas doesn’t, however, mean you’ll have to pay a higher interest rate. Avoiding higher rates is often a matter of shopping around for the right lender.
We work with numerous specialist lenders who regularly offer expat loans to Australians living abroad. We can help you find the most appropriate lenders for your situation and can even negotiate for a better interest rate to help you get a better deal on your mortgage.
How Much Do I Need as a Deposit?
As an expat, you will only be able to borrow 90% of the property value, however, in some cases, you can borrow more. As a minimum, make sure you have a 5% deposit ready plus enough to cover purchasing costs. With such a small deposit, it needs to be your genuine savings rather than a lump sum gifted to you or money from an inheritance. So you’ll want to make deposits into your savings account for at least 3 months.
If you have a larger deposit, you probably won’t have to provide a genuine savings. You’ll still have to pay LMI though unless you have more than a 20% deposit.
What if you don’t have a deposit saved but you are ready to purchase a home? You can qualify for a mortgage without a deposit if you have a guarantor. For example, your parents can use their Australian property to guarantee your loan.
How the Tax Rate Your Lender Uses Impacts Your Loan
When the bank determines if you can service the loan with your income, they will look at the tax rate to estimate what you’ll take home after tax. When you live abroad, the country you live in is likely to have a lower tax rate than Australia does. Aussie tax rates are some of the highest in the world.
If you apply for a mortgage with a lender who uses the Australian tax rate, your estimated after-tax income will appear to be smaller than it is in the country you are living in. This makes it harder to qualify because it shrinks your income on paper.
In order to avoid the Australian tax rate, you’ll have to:
- Find a lender who will use the foreign tax rate.
- Live in one of the countries that qualify.
- Show where your tax is withheld on your payslips.
If you are an expat trying to qualify for an Australian mortgage, call us on (07) 3146 5732 or fill out our online enquiry form today. We know which lenders will use a foreign tax rate for expat home loans.
Understanding Your Borrowing Power as an Expat
It’s not just the Australian tax rate that will lower your borrowing power as an expat. Because of a variety of factors, you could end up with limited borrowing power.
Lenders will usually only use a percentage of your income after they account for factors like exchange rate fluctuations and loaded repayments on foreign debts. Often, they will only use 60% to 90% of your income. This is something you should keep in mind when considering how much you may be able to borrow as an expat.
With the exchange rate, your lender will use their own rate. Bank exchange rates tend to be more conservative than the market rate. This will effectively reduce your listed income on your home loan application.
Borrowing with More than One Currency
Earning an income in more than one currency when you live abroad won’t make or break your application. As long as each currency is in your lender’s preferred or secondary currency lists, your foreign income can be included.
What your lender will do is apply that conservative exchange rate to each of the currencies, which like mentioned before, limits your borrowing power.
Power of Attorney for Expat Loans
Your lender may require you to have a Power of Attorney (POA). Even if you don’t have to have a POA set up, you may want to anyway.
With a POA, someone you trust, such as a family member, friend, or a solicitor can save you a lot of hassle when it comes to managing legal and financial documents for your mortgage, and for the property. When you give someone Power of Attorney, they can sign documents on your behalf.
However, as no lender is the same, the POA requirement is going to vary from one lender to the next.
Some lenders will have specific requirements for a POA. For example, you may have to use a solicitor or a close relative instead of a friend.
Other lenders won’t accept a POA at all. This means you’ll have to have the documents mailed to the Australian embassy or consulate in the country you are residing in. You’ll have to then sign the documents at the embassy with an official witness.
What You Need to Know About Using the Australian Embassy for Your Home Loan
Visiting the Australian embassy is going to become a part of the process of taking out an expat home loan, whether your lender accepts a POA or not. No matter what, you’ll have to have your ID certified there before you can turn in your application.
If you can’t use a POA because your lender won’t accept documents signed by someone else, you’ll have to sign your loan documents with a witness at the embassy or consulate.
Keep in mind, you’ll need to pay a fee every time you go to sign documents in front of a witness. This service can cost a hundred dollars or more each time. Fees will vary from one country to the next. To make sure you are prepared and know what to expect, you can call the consulate before getting your loan application together and ask what they charge. Then, factor this cost into your estimate for how much you’ll need to save for your mortgage.
What If I’m Married to a Foreign Citizen?
If you are planning on applying for a mortgage with a foreign citizen, it’s important to be careful in choosing a lender. This is actually common with expat loans. If you live and work overseas, you may have married someone from outside of Australia. Or, you may be in a de facto relationship.
In this case, lenders can look at your application in different ways.
They may assess you and your spouse or partner as Australian citizens. This would simplify your loan application and make it easier for you to qualify for the loan you want.
Another possibility is they will assess both of you as foreign investors. This will mean you’ll need a larger deposit and the lender will only look at a fraction of your income, reducing your borrowing power. You may also have to pay a higher interest rate.
Other lenders will take the highest income earner’s nationality and use it to assess both of you.
Will Lenders Look at My Foreign Partner’s Salary?
Not usually. If your partner isn’t an Australian citizen or permanent resident, they’ll typically ignore their income.
There are ways to get around this if you find the right lender and if your partner can meet certain criteria:
- They live in Australia;
- You are married or have been in a de facto relationship for at least 2 years;
- You have children together;
- They have a valid visa;
- You are the primary income earner.
Can I Qualify as a Self-Employed Borrower?
Working abroad as an expat and being self-employed makes it difficult to qualify for a mortgage. This is because it is hard for banks to verify your foreign income because you don’t have traditional payslips from an employer like a PAYG income earner.
There are a very limited number of Australian lenders who will work with a self-employed expat. The only way to qualify with them is if you have a large deposit – you may be able to borrow up to 70% to 80% of the property value. You’ll also need to have been self-employed for at least 2 years. Your lender will require extra documentation to help them verify your income, including business bank statements, 2 years of personal and business tax returns, and an official letter from your accountant.
Does the Foreigner Stamp Duty Surcharge Apply to Expats?
Foreigners buying property in Australia have to pay a surcharge on stamp duty. This also means, if you purchase a home with your foreign partner, you could have to pay the surcharge.
Australian expats aren’t subject to this surcharge. If you are an Australian permanent resident living abroad, you may have to pay it. It’s a good idea to check with the state revenue authority for the state or territory where your property is located to find out ahead of time.
The Secret to Qualifying for an Australian Mortgage as an Expat
With Australian expat home loans, you can have a completely different experience from one lender to another. There are simply too many factors that go into determining eligibility. And then each lender uses their own approach for each factor, creating even more complexity.
Something as seemingly minor as the foreign exchange rate your lender uses could lower your borrowing capacity enough to stop you from getting a loan you could easily qualify for with another lender.
The lender you choose can also impact your interest rate, whether you have to pay LMI or not, the size of the deposit you’ll need, and if you’ll have a chance of qualifying at all.
However, with an experienced mortgage broker to guide you through the process, uncovering the right lender for your situation becomes a lot easier. For expat home loans, contact us on (07) 3146 5732 to talk to one of our experts or fill out our enquiry form online. We have more than a decade of experience helping Australians, including those who live abroad, to qualify for a competitive loan.