Mortgages for Foreigners in Ethiopia: Quick Guide

This guide is designed for those who want to know the characteristics and conditions of mortgages for foreigners in Ethiopia .

Often, foreign buyers prefer to take out a loan in their home country.However, Ethiopian mortgage offer can be very attractive, both for foreigners residing in Ethiopia and for those who do not have residence in our country Due to wide business opportunity.

In fact, as you will see in the next section, the number of foreigners who choose this alternative is increasing. Not in vain, foreign demand for housing is at historic highs, representing 13.75% of total sales in 2023 Even though Ethiopian government does not allow for foreigners at that time.

Will your nationality influence conditions taking mortgages in Ethiopia?

As a general rule, the conditions of contracting the mortgage are influenced by, among other factors, the economic profile of the applicant, as well as the characteristics of the property and the environment where it is located.

That said, nationality can also influence the conditions of the mortgage loan contract; although this is due to the fact that the credit profile of the citizens of a certain country may be considered higher risk than that of those of another.

In short, the country of origin of the mortgage applicant can be an indication that positively or negatively affects the credit risk rating associated with it.

As we will see in the next section, this fundamentally affects foreigners who do not habitually reside in Ethiopia.

On the other hand, the banking sector is subject to strong regulatory pressure to control money laundering, which is why it is obliged to apply especially rigorous measures to guarantee that the investments and operations of its foreign clients comply with the law.

Mortgages for foreign residents and non-residents in Ethiopia

One of the aspects that does significantly influence the conditions of the mortgage loan granted to a foreigner is the fact whether or not he or she is a habitual resident of the country (Ethiopia).

Mortgages for foreigners residing in Ethiopia are ordinary mortgages, like those granted to Ethiopian citizens. While mortgages for non-resident foreigners are subject to more demanding conditions.

To begin with, not all financial entities approve mortgages for foreigners not resident in Ethiopia. In other cases, loans are subject to certain limitations and conditions, which fundamentally affect the maximum amount to be financed and the interest rate established in the contract.

The main reasons for this restriction are related to the difficulty in dealing with possible late payment by these clients.That is to say, in the case of non-payment, it is difficult to take effective judicial action, especially in the case of foreigners not resident in Ethiopia.

In fact, in a hypothetical situation of non-payment, it is difficult to proceed with the seizure of assets abroad, so that the main guarantee available will be that of the mortgaged property itself.

Requirements to obtain residency for tax purposes

For a natural person to be considered a resident in Spanish territory for tax purposes, they must meet at least one of these conditions:

  • Stay more than 183 days in the country, throughout the calendar year; although sporadic absences will be included in the final count.
  • The main core or base of your activities or economic interests must be located in Ethiopia, directly or indirectly.
  • Your non-legally separated spouse and dependent minor children must reside in Ethiopia.

Conditions of mortgage loans for foreigners in Ethiopia.

The usual conditions of mortgages for foreigners in Ethiopia are similar to those for Ethiopian citizens, except for what is specified above, as well as some details that affect the documentation.

  • To begin, it is necessary to open a Diaspora or foreigner current account at the bank based in Ethiopia which is Commercial Bank of Ethiopia per the current national Bank policy
  • In this regard, mortgages are offered at both a variable rate (based on the index plus a differential) and a fixed rate. This last option ensures that the monthly installments payable remain constant throughout the life of the contract. It should be taken into account that the interest rates set for non-residents in Ethiopia are usually higher than those offered to residents.
  • The applicant’s debt level cannot exceed 30%-35% of usual income; That is, the amount resulting from adding the payment of your future mortgage and the payments of other existing debts cannot exceed this limit.
  • On the other hand, the maximum repayment periods range between 20 and 30 years – exceptionally – as long as the applicant’s age does not exceed 70 years before the mortgage matures. That said, maximum terms for non-residents rarely exceed 20 years.
  • The provision of real estate guarantees and personal guarantees favors financing conditions; Although we have already indicated that properties abroad are not assets that Ethiopias banks particularly value, due to their inaccessibility. For the same reason, personal guarantees must be presented by residents in Ethiopia.
  • Finally, taking out a mortgage entails a series of complementary expenses, such as the notary, registration, management and taxes. All of this usually represents between 8% and 13% of the price of the home.

In addition to these general conditions, it is worth analyzing the following aspects in more detail.

Mortgage credit limits

As a general rule, mortgages have a credit limit for the acquisition of a primary residence equivalent to 80% of the purchase and sale price or appraisal of the property. In the case of a second residence – such as one intended for summer holidays – the amount is usually reduced by 60%.

Ultimately, the applicant must provide equity of between 20% and 40% of the value of the home.

In principle, mortgages for foreigners residing in Ethiopia are governed by these same limits, unless the bank considers that the client’s credit profile represents too high a risk and reduces the available financing in accordance with the circumstances.

For their part, those foreigners who do not reside in Ethiopia will have to assume the limits inherent to the financing of a non-habitual home, given that their non-resident status makes it impossible for the property to be considered in any other way.

Furthermore, and due to the risks that we have already described above, mortgages granted to residents abroad may see the maximum limit reduced even to 50%, if the bank deems it appropriate.

Documentation necessary for the processing of the mortgage

The documentation required by financial entities for the feasibility study and subsequent granting of a mortgage is similar for both foreign and national clients.

The main difference consists of the specific type of document that certifies the economic information required by the bank; that is, the one used to evaluate the client’s credit profile and solvency.

This is because the specific documentation differs from one country to another, the important thing being the data contained therein.

That said, we proceed to indicate a list of the usual documents when applying for mortgages for foreigners:

  • Photocopy of the NIE or passport and, where applicable, the certificate proving non-residence in Ethiopia.
  • Tax residence certificate.
  • Employment contract and last 3 payslips received in the country where you reside.
  • Tax return for the last year.
  • Bank statement of the account into which your payroll is deposited, with the movements of the last 12 months.
  • Last 3 receipts for your outstanding debts, such as loans or credit cards.
  • Record of your current assets, such as property titles or bank accounts.
  • Simple registration note of the property to be purchased.
  • Contract for the sale of the property or, failing that, the deposit contract, which is a pre-agreement with the seller of the property.

Credit risk report for non-residents

In the specific case of non-residents, financial institutions request a credit risk report, with the aim of verifying the economic activity and solvency in the country where they reside and work.

This type of report is issued by entities such as Experian in the United Kingdom, SCHUFA in Germany, Transunion in the United States or Transunion CRIF in Russia.

Likewise, proof of the contributed capital must be presented, in order to avoid money laundering operations.

Documentation translation

Necessarily, all documentation presented that comes from a non national language speaking country must be translated by a sworn translator, at the client’s expense to required language .

However, due to the rise in mortgages for foreigners, there are already entities that have their own translators, which makes it possible to dispense with sworn translation.

Documentation presentation

The usual practice is that the client is required to attend in person to present the original documents to the bank, as well as to sign the contract before a notary.

However, there may be cases in which the financial institution accepts the postal delivery or scanning of said documentation, as well as the appearance of a duly authorized legal representative with power of attorney. Obviously, this is more common in the case of mortgages for non-resident foreigners.

Regardless of whether there is the power to present the documentation electronically, we recommend that you always go to the bank in person. In this way, you will be able to receive information and advice from the personal manager on everything that concerns the mortgage granting procedure, the amortization table and the rest of the conditions established in the contract.

We trust that this information will be useful to you when taking out a mortgage for foreigners in Ethiopia.

Leave a Reply