Qualifying for an NHT loan
Oran A. Hall, Contributor
QUESTION: I am a 23-year-old female and have been working in the tourism sector in western Jamaica from 2008 to the present. I would like to start saving towards my home but I only work for J$7,493 per week. My weekly expenditure amounts to J$6,000, which includes lunch, travel, and miscellaneous. I don't see any other means of generating any form of additional income at present. My goal is to acquire my own place before I reach 30 years old. By getting this amount of pay per week, at what age do I qualify for a National Housing Trust (NHT) loan to acquire a scheme house, or to start building a house?
PFA: An NHT contributor must earn an income that is enough to repay the loan being applied for. How long it takes to qualify depends on the cost of the house and the contributor's earnings, but his or her ability to save enough to make the deposit and cover other costs associated with home acquisition are also important.
To qualify for a loan from the NHT, the applicant must also be a contributor at the time the application is being made; must have made 52 weekly contributions - 13 in the last 26 weeks just before the date of application; and must have paid up with interest all outstanding contributions due for the last three years, or for one year if he or she earns less than J$7,500 per week. Applicants should be between the ages of 18 and 65.
The loan limit for the Build-On-Own-Land and buying a scheme house is J$4.5 million. In the former case, it is expected that you own the land or have legal permission to build on it.
You would be required to start construction, putting in the foundation, for example, before being able to access a loan from the NHT. You would then qualify for the full benefit if you meet the affordability test.
If you opt to purchase a scheme house, or buy on the open market, you would qualify for a sum equivalent to 95 per cent of the market price or valuation, whichever is less, up to a maximum of J$4.5 million.
Of course, how much you are able to borrow is determined by what you can afford based on the income you earn. There are other loan facilities offered by the trust, each of which has its own limit.
The rate of interest on NHT loans is particularly attractive.
At your level of income, the rate is one per cent per annum, but you are pretty close to the top of your salary band. The next band ranges from J$7,501 to J$10,000.
Increasing your salary by a mere one per cent would move the rate applicable to a loan to you to three per cent, so your monthly payment would increase.
As you can see from the following, the interest rate increases as the income of the borrower increases: the rate is five per cent for borrowers earning between J$10,001 and J$20,000.99, and seven per cent for borrowers earning over J$20,001.
It is commendable that you have set a time by which you would like to own your home. As difficult as it may appear to you, it is not impossible for you to own your own a home in the time you have set.
Many things can change by then. You may be able to get a higher-paying job, or come upon a good business opportunity. You may be able to co-apply with another qualified contributor to purchase a home, in which case it would count as two separate mortgage accounts and two benefits, one to each co-applicant.
In any case, you must begin to save now - with the J$1,493 per week. You may be able to increase your capacity to save by managing better what you call "miscellaneous", which, quite frankly, is meaningless.
Make every effort to identify and classify all your items of expenditure to improve the management of your money. How fortunate you are that you do not have some of the expenses that many young people your age have.
Save as much as you can while you can.
Home ownership is a good goal to strive for, but there are other goals that you should focus on as well. Invest in education, for example, to make yourself more marketable and to improve your chances of owning your own home.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning.Email: email@example.com