Ready to leave the nest? Tired of renting? Or perhaps, in these economic times, you are looking for a long-term investment in the one asset that is guaranteed to appreciate (rather than depreciate!) with the passage of time: a home of your own.
For many, home ownership is a lifelong dream — and one that seems to be becoming more and more elusive, as property costs continue to skyrocket. Buying a home is one of the most significant financial decisions you will make, and also one of the most emotional.
Navigating through the financial terminology and understanding all the associated documents and costs can be daunting.
Republic Bank makes it as easy as 1, 2, 3 to own your own home. Through their constant contact with Real Estate Developers and Real Estate Agents, they can also help you find a home in your price range and preferred location.
Here’s a comprehensive overview of how to go about becoming a homeowner, as well as some tips to help you along the way:
1. Mortgage Certificate Stage
First, get pre-qualified. Even if you haven’t saved your entire downpayment yet, it is a great advantage to get pre-qualified. Getting this certificate simply means that the Bank has reviewed your financial situation and advised you on how much you can afford to spend on a home in terms of purchase price, downpayment, legal fees and other closing expenses.
There’s no cost or obligation to get pre-qualified, and by doing so you will not only know how much you can borrow, but also have an idea of what your monthly mortgage payment will be — so that you can start preparing yourself to live a bit more frugally.
Documents you will need at this stage:
- A letter from your employer stating salary, allowances, employment status and length of service, as well as a recent payslip. For self-employed persons, instead of the payslip you can provide a certified statement of income (prepared by an accountant) or financial/bank statements for the last three years.
- The name and address of your bankers
- Statements from all banks and other financial institutions, reflecting your deposit and loan balances with applicable instalments (this information can be retrieved for Republic Bank customers)
- Two forms of valid identification (ID card, passport or driver’s permit)
What You Should Know:
- For the purchase of house and land, Republic Bank offers up to 90% financing.
- For the purchase of land, Republic Bank offers 75% of cost or value, whichever is lower.
- The term of the loan is a maximum of 30 years, and is not to exceed the applicant’s age of 60, or 65 in the case of self-employed persons.
- At your interview, your mortgage advisor will evaluate your Debt Service Ratio (DSR), a percentage of your gross income that includes loan payments, credit card payments, rent costs, hire purchase agreements, alimony or maintenance payments, and other such liabilities. Your DSR should not exceed 45% inclusive of all liabilities.
- The mortgage interest rate offered will vary, but is dependent on the base Mortgage Market Reference Rate (MMRR). This is announced by Central Bank on a quarterly basis, and is based on information on commercial banks’ funding costs and yields on applicable treasury bonds. The MMRR is an interest rate benchmark, against which mortgages are price and re-priced. In layman’s terms, this means that the interest rate can change subsequent to taking out a mortgage, which will affect the monthly instalments you pay.
Tip: Each mortgage payment builds equity in your home — which you can use as collateral (i.e. security) to be able to access other financial products such as a loan.
2. Letter of Offer Stage
Documents you will need at this stage:
House & Land
- The purchase agreement
- A copy of the title document – Deed of Conveyance/Lease, Certificate of Title
- Copies of up-to-date receipts for lease rent (if applicable), WASA rates and land and building taxes (for the purchase of land: land tax receipt)
- A WASA Clearance Certificate
- A Valuation report (to be obtained from one of Republic Bank’s approved valuators)
- A copy of the existing mortgage deed (if applicable)
- Completion Certificate from the relevant Local Government Authority if the property is recently constructed (not required for purchase of land)
If you own or are buying land and want to build your own home, you will need Bridging Finance to bridge the gap between construction and completion of your home. Apart from the list above, you will also need:
- Approved building plans
- A detailed Builder’s estimate
- A Quantity Surveyor’s report
- A building contract (if applicable)
- The full name and address of the Builder’s bankers, as well as two written references on the Builder
- Projected Valuation Report
- Upon completion of the building, a Completion Certificate from the Local Government Authority and an Electrical Inspection Certificate from T&TEC will be required.
If you are purchasing a townhouse or a condominium, you will need to provide the same documents required for purchasing a home, as well as the following:
- Articles of Association of the Administrative Company
- A copy of the blanket homeowners’ insurance policy issued in the name of the administrative company (if applicable)
- If the unit is being purchased from the developers, the agreement must contain details of all applicable maintenance charges.
- If the unit is being purchased from an existing owner, written confirmation of all applicable maintenance fees and evidence that the fees are not in arrears. You must also provide a copy of the last receipt of payment.
- A copy of the share certificate pertaining to the unit. The original certificate must be produced to the Attorneys when the purchase is being concluded.
Life insurance: this gives you the peace of mind that your family will not have to bear the burden of the mortgage instalments or move out of the premises if you were to pass away. The insurance will cover the outstanding balance of the mortgage loan.
Comprehensive insurance: this protects the property against the threat of fire and other risks on your home. It is taken for the amount recommended in the valuation report.
Mortgage Indemnity Insurance: Mortgage Indemnity Insurance is insurance required when the loan amount required is in excess of the 80%. This insurance is available up to a value of $100,000. Instead of paying for Mortgage Indemnity Insurance, you can use other security e.g. equity in another property or cash/investments to cover the ‘excess’ requested over 80%.
Mortgage Instalment Protection (optional): This pays your mortgage and mortgage-related expenses should you become temporarily disabled due to accident or sickness which results in a loss of income; or pays off the outstanding balance on your mortgage loan if you become permanently totally disabled; or waives the premiums due for up to one year for the above benefits if you become unemployed due to redundancy or retrenchment.
Tip: Although you have the option of using your own attorney to prepare the Deed of Conveyance you can save money if you use one of the Bank’s attorneys for both the Deed of Conveyance and the Deed of Mortgage. With the same attorney you will only have to pay 50% of the attorney fees for the Deed of Mortgage and you will only have to pay the search fee once.
3. Disbursement Stage
At this stage you must have already provided all the documents, insurances and obtained the Deed of Conveyance. Once the facility has cleared searches and the title is deemed to be free from all encumbrances, and you have satisfied all outstanding conditions, the next phase will be to execute the Mortgage Deed. To draw down on your loan you are required to sign the Deed of Mortgage. These legal documents will then be stamped by the Board of Inland Revenue.
The attorney who prepared your Deed of Conveyance or Lease, as applicable, will provide a Return of Ownership which must be taken to the District Revenue Office for recording the transfer of ownership in the Land and Building Register. A number is allocated by the District Revenue Office, which must be quoted when future land/building taxes are being paid.
You will then be given instructions to go to WASA to transfer the name on the account or open a new account in your name. You will also have to do the same at T&TEC.
Summary of Costs for Republic Bank mortgage
|Mortgage related costs||Calculation||When Due|
|Down payment||10%-20% & over the cost of property25% & over the cost of land||Upon signing of vendor’s sale agreement and before the Bank presents you with the Letter of Offer|
|Valuation report cost||1.0% of the mortgage value||Before the Bank can disburse financing|
|Handling Fee||1.0% of the mortgage value||Upon acceptance of the Letter of Offer|
|Mortgage Indemnity Insurance
(Charged when financing property over 80%)
|(% financing) x lower of cost & market valueminus 80% x lower of cost & market valueResult x 11%plus 6% tax||Upon acceptance of the Letter of Offer|
|Deed of Conveyance costs||Fees + Vat (rough averages)
(1.2% market value Old law; 0.8%, market value R.P.O)plusStamp Duty (no exemption for land purchases)
(Nil under $450,000,
10% $650,001 and above)plusSearch Title (average) $1,000
|Due before disbursement of loan|
|Group Life Insurance||Ranges from $0.12-$0.95 per $1000 of mortgage value||3 months premium due after acceptance of Letter of Offer, before loan can be disbursed|
|Group Fire Insurance||$3 per $1000 + 6% tax||After acceptance of Letter of Offer, before loan can be disbursed|
|Deed of Mortgage costs||Fees + Vat rough averages
(1.2% Mortgage value Old law; 0.8% Mortgage value R.P.O )plusStamp Duty (no exemption for land purchases)
(Exempt up to $315,000, thereafter 0.2% NB if you already own a mortgage and you are refinancing the charge will be 0.4%)plusSearch Title (average) $1,000
|$2,000 down payment due upon acceptance of the Letter of Offer and remainder due on draw down date|
And, just so you know…
- Have no fear — a mortgage need not be a ‘death sentence’! Many people worry about the length of the commitment, as they are not sure how their financial situation may change in the future. Bear in mind that you can pay off your mortgage early (and do a happy dance!). If you choose to do so, this may incur some prepayment penalty costs, but may be beneficial for you in the long run. You can also adjust your mortgage instalments as your financial situation changes.
- Don’t forget to take advantage of the tax break! The Government offers a tax allowance up to TT$18,000 per household on mortgage interest paid in the year of income for first time homeowners. This is applicable for 5 years with effect from the date of acquisition. As a first time home owner, you can take advantage of this tax break when doing your Annual Income Tax Returns and have more money in your pocket.