Oran Hall | Dream home in five years
I am a 24-year-old registered nurse who has been working for almost two years. My dream is to own a home within five years’ time, but I’m making a small amount of income that is mostly used to pay student loans and rent. Could you provide me with some financial advice on ways and methods to own my dream home within five years and to become financially stable?
FINANCIAL ADVISER: How soon you are able to buy your dream house depends on the dream house you have in mind. Not many people are able to realise their dream house the first time they buy a house.
Quite often, they trade up or make enhancements to their house over time. Some of the very beautiful houses that you see around the country did not look that way when they were first built.
It would be useful to determine what you want and get an idea of the price so you can be guided in how you approach your dream, bearing in mind that its price will increase as time passes. You would also have to consider if you can accumulate the money required to make the deposit and to cover the closing costs.
The deposit could be as much as 10% to 20% of the purchase price depending on what you agree with the seller. The purchaser pays closing costs – the range of expenses incurred in settling the transaction. Some are shared with the seller and others are not.
Consider also the mortgage payment and your ability to pay that sum every month. To get a mortgage, you must be able to satisfy the mortgage-lending institution that you are able to meet your financial obligations to it. A mortgage-lending institution usually requires that borrowers earn a monthly income that is thrice as much as the monthly mortgage payment.
The cheapest route to home ownership is through the National Housing Trust (NHT) which lends to qualified contributors to build or to buy their home. I cannot guarantee that going this route will enable you to acquire your dream house, but you can still buy a decent house with the resources it is able to make available to you.
If you plan to buy, you could get an NHT scheme-house loan or an open-market loan. Should you decide to build, you could get a build-on-own-land loan or a construction loan, but you would need to own land on which to build.
Other loan facilities include the NHT serviced lot loan and house lot loan. All of these are non-homeowners loans, meaning that only contributors who do not own a house and have never received a benefit are eligible.
The NHT develops or finances the development of scheme houses, which are sold directly to contributors. When these units become available, they are advertised in the public media and contributors are invited to apply.
The NHT allocates units in its schemes using a selection process. Qualified applicants who are selected for its units are not required to make a deposit but must be able to afford the unit. An applicant who qualifies for less than the price of the house is required to fund the difference.
The open-market loan is for buying a house on the open market that is being sold by an individual or agency other than the NHT. If you need and can afford to borrow more, you may borrow the balance from a financial institution that is willing to enter into a joint financing mortgage arrangement with the NHT.
Generally, one advantage of borrowing at a young age is that it allows for a longer time to repay the loan and thus lower monthly repayments. Borrowers from the NHT have up to age 70 to repay the loan, but the maximum term allowed is 40 years
The first thing you need to do is to save although your capacity to do so is limited. You cannot depend on interest income to make your funds grow, so you may want to consider an investment strategy that gives some opportunity for capital appreciation. I would prefer the capital growth unit trusts over investing directly in ordinary stocks.
That you have set five years to realise your goal suggests that you are an optimistic person. Fortunately, you are in a profession that creates opportunities to make additional income, but you should be careful that you do not drive yourself to exhaustion if you choose that route.
Oran A. Hall, the principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.