First time buying a home?
So, you’ve decided to take this big step to buy a home (and it is a very big step indeed), probably the single largest investment you’ll ever make. Owning your first home comes with so many mixed feelings of excitement, anxiety and uncertainty, that it’s quite easy to forget the smaller but important things. At Terra Caribbean, we understand these feelings and pride ourselves in holding our clients’ hands, and for our first time homeowners, holding them just a little tighter.
Hence, we’ve compiled a comprehensive guide to help you along the way, from all the unsaid costs to general tips, from an Agent’s as well as a buyer’s perspective.
Are you ready to buy your first home?
1. How much money can I borrow from the bank?
Mortgages are usually the main source of funding for first time homeowners. Most mortgage companies provide financing for up to 80 - 90% of purchase price or valuation price of the property (whichever is less), and in some cases 100% financing may be available. It is strongly recommended that you speak with a representative from your financial institution/mortgage house to determine how much you’re pre-qualified for and the most affordable mortgage package for you.
What is the Pre-qualification Process?
At this juncture, through your Mortgage Officer you acquire your Pre-approved Mortgage Certificate, which basically states the amount that you can borrow (the principal sum). This process and document allows your bank to look at your financial position on the below factors to give you a precise budget to stay within when searching for your home. It also ensures that even after the mortgage is approved, you can still live comfortably.
Your budget and pre-qualification figure is determined by a combination of factors such as:
- Your Income – Whether single income application or a joint income application with you and your spouse or other family members. Consider whether you want a single or joint mortgage. Joint income means a higher qualifying mortgage, but also means joint liability.
- Your Age (and ages of co-applicants) – Amortized monthly payments of principal and interest can be granted for up to 30 years (maximum term and age of client not to exceed government age of retirement). We advise that you ask your bank if there are penalties for early or lump sum repayments.
- Level of Debt, specifically your Debt Servicing ratio – Simply how much you can afford after monthly commitments are paid and general ability to comfortably repay a long term facility/mortgage.
- Credit Report/Credit Score – All outstanding debts or loans, whether short term or long-term encumbrances on either applicant’s name.
- Interest Rate of the principal sum – Banks and other lending institutions are very competitive with their rates and services. For instance, banks offer fixed rates or variables rates. Ask your bank how this may affect your mortgage premiums, and shop around for the best rates and what meets YOUR needs.
Click here to do a quick calcuation using our Mortgage Calculator.
2. What funds do I have to come up with?
Now that we’ve figured out financing and our budget, what about the other expenses when buying a home? It’s a common misconception that all that’s needed to initiate the buying process is the 10% down payment. However, in addition to the 10% of the agreed price of the property, there are several out-of-pocket ad-hoc expenses just to close on a house sale. Therefore it’s imperative to have this cash safely put away before you start your search.
Here’s a quick list:
- Valuation Report – This is usually 0.25% of the determined value of the property plus VAT. (Yes, we do Valuations)
Click here to request a Valuation through Terra Caribbean.
- Attorney Fees – This cost varies depending on the law firm or attorney chosen by you, the buyer. Your attorney conducts the conveyancing of the property (preparation of legal documents to change ownership from Vendor to Purchaser) as well as title searches to ensure that the property is not encumbered in any way and is rightfully owned by the Vendor.
- Stamp Duty – This cost is charged by Government and is a tax for changing ownership as well as registering the Deed of the property in the new owner’s name. However, properties sold in a company’s name are exempt from Stamp Duty but are subject to a share transfer fee of approximately 0.05% of the value of the shares/ value of the property.
Click here to learn more about Stamp Duty.
- House Insurance – Financial institutions/banks require that homes are fully insured in case of emergencies. This covers both you and your chosen bank from financial losses. Proof of this insurance certificate is necessary to close transactions.
- Life Insurance – Some banks request life insurance as a form of collateral on the mortgage in case of death or accidents. It’s advisable to shop around for preferred rates that best suit your needs/requirements.
- Bank charges – Your mortgage house’s Management Fees, Negotiation Fees and Service Charges usually amount to 1% of the mortgage amount.
- Budget for other expenses after the home has been purchased – It’s advisable to have some cash put away for home improvements such as, painting over or fixing a gate or installation of AC or any other repairs to make your new home to your standard.
3. The Property Search - Know the market and what you’re looking for
Down payment? Check.
What’s on your wish list?
The property type would be a factor of what you qualify for and your personal/family preference. However, you should have a general idea of what you want in mind…and on paper! A good start will be to write down what you want and create your personal wish list, and include the things you will NOT compromise on.
Your wish list should include:
- Location and type of neighbourhood – Consider the commute to work, schools, shopping etc. Urban versus suburbs or rural or country living. Do you prefer a gated community which would mean maintenance or HOA (Homeowners’ Association) fees or a residential neighbourhood with stand-alone homes?
- Property Type – Land versus house, townhouse or apartment? Do you want a move in ready home or would you like an affordable fixer-upper?
- Number of bedrooms and bathrooms – Think long term, would you need extra land area for expansion in the future or extra bedrooms for a young growing family?
- Other factors – Do you want a pool or a big backyard? What about a view or close to the sea? Other added benefits cost, but if you can afford it, it’s best to add it to your wish list.
Remember to share this list with your Real Estate Agent. Don’t have an agent?
Choose your Real Estate Agent
Your Real Estate Agent works for YOU and must understand your needs. It should be an open conversation where you share your must haves and wish list and they share their suitable options and market insight. Agents should take the time to get to know you, the buyer, to understand your needs and guide accordingly.
To connect with any one of our Agents, click here.
Choosing YOUR new Home…
After seeing options on the market, choosing the right home is difficult. The perfect home is rare if not impossible, but choices may come close.
It’s best to:
- Refer to your wish list. Remember, this is a huge investment and your ideal home should have most of your wish list items checked.
- Check off advantages and compare to the disadvantages.
- Have an open mind and foresight of what you can make of that home.
- Ignore cosmetic changes as these can be changed over time. Focus on the structure and how it can work for you.
- Have a drive by at night. Houses and neighbourhoods look different in the night. Be sure that you like the night drive or nightly activities surrounding the area.
- Ask questions! Your Agent is there to help you as the industry professional and should offer advice and counsel.
- Remember this is a long term investment for your family and will only appreciate in value!
4. Let’s make an offer!
It’s time to sign that commitment for your forever home. You’ve secured financing and all roads lead to that piece of property that you can call your own. What’s next?
- Make an offer – Your Real Estate Agent acts as your representative in the price negotiation and makes the offer to the Vendor, in writing, on your behalf. Avoid unnecessary negotiations or price wars. Take a breather and step back if the process becomes overwhelming but your agent should guide you to a favourable position.
- Offer has been accepted! – Don’t celebrate yet! Once your written offer is accepted, a Sale Agreement is signed by both parties stipulating terms of the sale, your 10% down payment goes into escrow, and proof of the clear title of the property is obtained, all before funds are disbursed from your mortgage house to the Vendor.
- How long does the process take? – Within this 3 month period, there are many moving parts. The bank, your financier, prepares the relevant documents on their end to disburse funds to the Vendor. To move the process along and to close the transaction, the bank would need:
- Title Searches – As mentioned before, your chosen attorney will do these searches on your behalf, for a fee. This is to ensure that the property is free of any liens and totally unencumbered.
- WASA Clearances, Land & Building Taxes Receipts, HOA fees – At this stage, your bank would need all documentation to ensure that the property is free and clear. This is usually at the cost of the Vendor.
- Regional certificates, any certificates of completion or Consent from the Lessor where the property resides on leasehold land.
- Final closing – The property is free and clear, your financing is ready to be disbursed and you are ready to sign and get your keys to your forever home.
Congratulations! It’s been a long road but, now you and yours have somewhere to call HOME.
Click here to connect with Jo-Ann Traboulay.