Friday | February 27, 2015

Do I qualify to buy a house on J$40K salary?

Published:Sunday | February 3, 2013

Oran A. Hall, Contributor

I would like information as it relates to whether an individual will be able to purchase a two- bedroom house in the western side of the island on a base monthly salary of J$40,000.

- Andre

Regardless of where you want to reside in Jamaica, it is possible to purchase a house on a monthly salary of J$40,000. I cannot say, though, what size house you would be able to purchase. As you can appreciate, house prices vary across the country and across locations.

The National Housing Trust (NHT) would be a good source for financing such a purchase.

To qualify, you should be currently contributing to the trust, be between the ages of 18 and 65, and have paid up with interest any outstanding contributions in the last three years.

You should have made at least 52 weekly contributions of which 13 should have been made in the last 26 weeks just before the date of application.

Applicants are required to attend an interview. They should establish that they are able to make their mortgage payments from their earnings. Providing an income and expenditure statement, or budget, is an acceptable way to do so.

Because you have not told me your age, I have assumed one to facilitate giving you a practical answer, so let us assume that you are 25. At that age and up to 30, you would be able to source mortgage funding from the National Housing Trust with a repayment term of 40 years.

Because your income is less than J$10,000 per week, you would pay a rate of three per cent and be able to borrow J$2,600,000 on which the monthly mortgage payment would be approximately J$13,000.

Minimum deposit

The NHT would expect you to make a minimum deposit of five per cent of the price of the house to the vendor. If the vendor requires 10 per cent, it would lend you the balance — 90 per cent. It has a special facility by which you would be able to use your contributions for the period 2006 to 2011 towards your deposit. This is called the Contribution Refund Towards Deposit (CRTD) policy.

NHT requires that beneficiaries of its loans for open-market purchases pay a service charge of five per cent of the value of the loan to cover mortgage-related expenses. This sum is treated as a part of the loan. If you were to borrow J$2.6 million, you would therefore have access to an additional J$130,000, to be repaid over the term of the mortgage.

If you were making a purchase on the open market, you would also incur expenses related to the actual purchase beyond those related to the mortgage. These would be based on the price of the property.

Let us say you decided to access the J$2.6 million from the NHT and that the vendor required a deposit of 10 per cent of the purchase price, you would be able to purchase a house for approximately J$2.9 million. The required deposit would be J$290,000 to which you could apply your CRTD.

Other charges would include: stamp duty J$43,500 (1.5 per cent of purchase price); and registration J$7,250 (0.25 of 1.0 per cent). Legal fees, which include services for drafting the sales agreement, vary; they may be as low as 1.5 per cent or as high as 4.0 per cent of the purchase price.

Should you opt to source financing from a mortgage-lending institution, you would be required to earn an income that is three times the monthly mortgage payment and be able to source funding equivalent to 90 per cent of the purchase price.

The mortgage-related charges would be approximately six per cent of the sum borrowed. Those related to the actual purchase would be based on the value of the property and would be at the same rates as mentioned above.

At your level of income, you would qualify to make a monthly mortgage payment of approximately J$13,000. At current market rates, you should be able to borrow just over J$2 million.

The rate varies among lending institutions but hover around 9.5 per cent. The monthly repayment would vary depending on the terms of the loan.

Many persons earn enough to service a mortgage but are not able to purchase a home because they do not have the funds to cover costs such as the minimum initial payment, or deposit, and the closing costs. It is very important to save aggressively and consistently to build up such a pool of funds.

The challenge so many persons face, though, is that there are not many houses available at prices they can afford. You could have such a challenge.

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. send feedback to