Can you get a home loan if you are an Australia working and living overseas?
The answer is YES! We explain everything you need to know when applying for a home loan to buy property in Australia as an expat working and living overseas.
I am earning foreign currency income, will the bank accept this for a home loan?
Absolutely – but the caveat is that not all banks will provide loans or accept foreign income. However, majority of banks will accept foreign income but they will have specific policies on how to calculate it and how much of it they will use to calculate your borrowing capacity.
There are some income types that may require additional approval from the bank, these are:
Overtime income
Bonus income
Worked related allowances
Commission or incentive payments
Rental income
Pension
Law and/or Accounting Firm partner income
How do banks calculate my foreign currency income?
Depending on the particular bank’s credit policy, most banks will convert your foreign income to an equivalent Australian dollar amount using the current exchnage rates.
The bank will then discount the income by 20% to 30%. This means, the bank will only use 70% to 80% of your actual income for your borrowing capacity calculations.
For example, if your annaul base salary before tax in US dollars is $100,000. The bank will conver this to the Australian dollar equivalent based on today’s exchange rate which will be around $152,000 AUD.
The bank will then use 80% of this amount which is $121,600 AUD as your salary income for borrowing capacity calculations.
Do banks treat my income using the foreign country tax rate or the Australian tax rate?
Most banks will apply the Australian tax rate after they have converted your foreign income to Australian dollars and applied the 20% to 30% discount.
This may not be favourable for your situation if you are living and working in a country that has a much lower tax rate compared to Australia.
Some of the banks listed below will actually use your NET foreign income, that is your income after tax and then convert it to Australia dollars. This means, if your country has a lower tax rate than Australia, you will then have more after tax income with this bank for borrowing capacity calculations, allowing you to borrow more.
Which Australian banks provide home loans for expats?
Most major banks such as CBA, NAB, ANZ, Westpac and St George will consider providing home loans for expats earning foreign income. Some non-major banks such as Bankwest, ME Bank, Macquarie, Suncorp, AMP and Bank of Queensland also accept expats applying for a home loan in Australia.
The best way to approach this is to speak to a mortgage broker who is familiar with each of the above bank’s foreign income credit policies so they can help you work out which bank has the most favourable policy based on your individual situation.
What is the maximum Loan to Value Ratio (LVR) for expat home loans?
LVR for expat home loans can vary greatly depending on the bank. It normally starts from 70% and goes up to a maximum of 95% of the property valuation amount.
The difference in LVR is determined by the bank’s credit policy, the purpose of the loan, the type of property (house, apartment, unit etc) and the location of the property.
Higher LVRs can attract Lender’s Mortgage Insurance which is a premium that is added to your loan amount as the bank considered this loan higher risk that what they prefer.
Are there any restrictions on the type of home loans that expats can apply for?
Expats can apply for owner occupied home loans as a second home if you will continue to live and work overseas.
Expats can also apply for investment home loans to purchase investment properties in Australia.
What should I consider as an expat when thinking about buying property in Australia?
Location and Market analysis due diligence
Research different locations within Australia to identify areas that aligh with your needs and investment goals. Consider factors such as property prices, rental returns, proximity to amenities, employment opportunities and future growth potential.
Your long-term plans
Think about your long-term plans for the property. Buying it as a permanent residence, a vacation home or as an investment. Consider how this may influence your decision regarding location, property type and future growth opportunities.
Currency Exchange
Factor in currency exchange rates and potential fluctuations with your long-term plans. The loan repayment and affordability can fluctuate as a result of currency exchange rates so you need to consider for the long term.
Legal Advice
Buying a property is a significant decision so it’s paramount to seek quality professional advice to understand the legal and financial implications of buying property in Australia. Make sure you engage a solicitor or conveyancer to guide you through the process.
Tax Implications
Ensure you understand your tax obligations in Australia and your foreign country as this may vary depending where you are living and working. Consult a tax professional who is familiar in dealing with expats so you can understand your tax liabilities, stamp duty, capital gains tax and any other applicable taxes.
Are First Home Buyer grants and schemes available to expats if I am a first home buyer?
All national and state based first home buyer assistance programs are available to expats as long you meet the program’s individual criteria. For example, most first home buyer assistance programs require you to live in the property within 12 months after settlement.
These grants and scheme provide cash grants between $10,000 to $30,000 when buying a new property.
You can also use these schemes to save on stamp duty as a first home buyer, subject to purchase price thresholds.
You may also be eligible to borrow 95% without paying any Lender’s Mortgage Insurance if you meet the scheme’s eligibility criteria.
I currently have a HECS/HELP debt – will this affect my borrowing capacity as an expat?
Banks will treat HECS/HELP debt as an ongoing liability and factor in the repayment as part of your borrowing capacity calculations. Even though some expats are not reporting and paying tax in Australia, banks may still use your foreign income to calculate your HECS/HELP debt repayment, which will reduce your borrowing capacity.
This is why it’s so important to understand the bank’s credit policy when it comes to foreign currency income for expats to ensure you apply with the bank that’s most favourable to your particular situation.
