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Oran Hall | Eligibility for state housing

Published:Friday | September 8, 2017 | 12:00 AM
A ‘no trespassing’ sign is displayed on property owned by the National Housing Trust. The agency develops housing and sells land lots, but it also lends to individuals to buy their own property.

QUESTION: I've read in one of your articles that if an individual wants a home located in one of the National Housing Trust schemes that a deposit is not required. Is this really the case? Or is it that it is required but not at all times. In addition, you said something about closing costs. Do you mind expounding on what the closing cost is and how this is calculated?

I have been employed for the past three months but was employed before for approximately 11 months and had stopped working to further my schooling. As an individual 23 years old earning approximately $14,000 per week, am I eligible to apply for a loan for one of the scheme homes?

I was also informed that it may take years for a loan to be granted by the NHT, especially for young individuals like me who are trying to find stability.

- Lyons

FINANCIAL ADVISER: The National Housing Trust, 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. If, for instance, the price of the house is $6.5 million and the applicant qualifies for a loan of $5.5 million, the applicant would be required to fund the gap of $1 million.

The maximum sum a qualified application may access is $5.5 million dollars, but two persons may apply jointly and thus qualify for $11 million.

How much an applicant qualifies for depends on age and income. Age is a very important factor in determining the term of the loan, that is, how long the applicant is given to repay the loan. The younger the applicant, the longer the repayment term.

Applicants have up to age 70 to repay the loan, but the maximum term allowed is 40 years. In your case, you would have up to age 63 to do so for a benefit received this year.

The term also determines the size of the monthly payment: the longer the term, the lower the monthly payment, but income is also important as it determines how much the applicant can afford to borrow.

To qualify for an NHT benefit, you should be currently contributing to the NHT; have made at least 52 weekly contributions 13 in the last 26 weeks just before the date of application, earn an income that allows you to repay the loan; and have paid with interest any outstanding contributions due in the past three years.

Although you have contributed for a combined 14 months, the break in employment means that you currently fall short of the 26-week requirement, having resumed employment three months ago.

The NHT says that it takes 90 days to complete the processing of the loan, which begins after the completion of the loan interview. It only offers completed units to its contributors. You should note, though, that it could be some time before you access a housing unit in one of the NHT's schemes considering that where you live or work in relation to the location of the scheme does matter in the selection process.

How long it takes for you to derive a benefit from the NHT is a function of your ability to meet its requirements. It is conceivable, for instance, that it could be some time before you are able to earn sufficient income to pass its affordability test.

Closing costs refers to the range of expenses incurred in settling the transaction, which culminates in the property being registered in the name of the buyer. Some of these expenses are shared by the buyer and the seller, and they are generally calculated as a percentage of the market value/selling price of the property.

Closing costs for real estate transactions include the registration fee (0.5%), stamp duty (4%), transfer tax paid only by the seller (5%), attorney's fee (2% to 4%), and additional attorney's fee for preparing the sales agreement and other documents. With respect to the NHT scheme units, though, successful applicants pay just $3,500.

You will soon be able to meet the requirement for the number of NHT contributions, but to succeed in owning an NHT scheme unit, there would have to be a scheme near to you, you would have to be selected, and you would have to be able to establish that you can afford it.

- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial-planning advice and counsel.