Oran Hall | How to acquire a house
QUESTION: I need financial advice on how to acquire a house with my current financial status, please.
FINANCIAL ADVISER: You have not said what your current financial status is, so I can only say generally how you can go about acquiring a house.
Interestingly, the first thing you need to do is to determine your financial status. What do you own, and what do you owe? Among your assets, how much cash and assets that you can easily convert to cash do you have? Importantly, what is your income, and how well is it meeting your needs? Are you able to assume more debt? Are you servicing well any debt you have now?
To buy a house, it is generally necessary to have enough money to pay the deposit. Perhaps you should look at having at least 10 percent of the price of the house to make that deposit. Many people find that they are not able to buy a house because they are not able to make the deposit although they earn enough to make the monthly mortgage payments.
If you have enough to make the deposit, can you pay the monthly mortgage payments? Affordability is key in determining if a lending institution – a building society, a commercial bank, or the National Housing Trust (NHT) – will lend you money to purchase a house. In many cases, the requirement is that the monthly salary should be three times the mortgage payment.
While it may be good to be required to pay a relatively small deposit, it would mean making higher monthly payments because of the higher sum borrowed.
Then there are legal fees. Generally, it is advisable to engage the services of an attorney-at-law to handle matters such as drafting the sales agreement and ensuring that your legal rights are protected. You will also incur costs for the valuation of the property and stamp duty, for example.
The National Housing Thrust is the cheapest option for sourcing a mortgage. Currently, the most an individual can borrow is $6.5 million to buy on the open market or to “build on your own land”. Borrowing more would require joining with another qualified contributor, thereby potentially doubling the sum that can be borrowed. But would you want to be joint owner of a house?
Let us say that you would want to borrow from the NHT, which could lend you up to 95 per cent of the purchase price or valuation, whichever is less, to purchase a house on the open market. Are you able to meet the NHT’s requirements for borrowing from it?
Here are the requirements: You should be a current contributor to the NHT; have made at least 52 weekly contributions of which 13 must have been made in the last 26 weeks just before the date of your application; have paid up, with interest, any outstanding contributions; and be earning an income that allows you to repay the loan.
Here is what seems to be an attractive option. 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 print and electronic media, and contributors are invited to apply.
A contributor applying for a scheme unit is selected for an interview, based on a combination of different factors, including:
l Proximity of the scheme in which the unit is located to the applicant’s workplace or residence;
l The number of weekly contributions made to the NHT by the applicant;
l The number of points the contributor earns (under the Priority Index Entitlement System) based on the years of contributing to the NHT and income, with those earning less income earning more points in the selection system.
The NHT provides 100 per cent financing for scheme units, subject to affordability. Interest rates vary, depending on the monthly income of the applicant at the time of the application. The rates are as follows:
l Zero per cent for income of up to $30,000.99;
l 1 per cent (public sector workers) and 2 per cent (all other contributors) for the income band of $30,001 to $42,000.99;
l 2 per cent (disabled persons), 3 per cent (public sector workers), and 4 per cent (other contributors) for income bands of $42,001 and over.
If you are interested in buying one of the NHT’s scheme units, you should keep your eyes open for announcements in the media and take the necessary steps to apply, but bear in mind that you can only be eligible for a unit in the parish where you live or work, and there are no guarantees.
In the meantime, do what you can to build up your savings and contribute to the NHT.
- Oran A. Hall, author of ‘Understanding Investments’ and principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and email@example.com