Log inMortgage Basics
Everything You Need to Know about Mortgages
Important steps to complete before you can finally "turn your own key".
So, you want to buy a home. In the movies, this is the point at which you start looking for “sale” signs, going to “open house” events, and chatting with a realtor about those high ceilings and hardwood floors you’ve always dreamed of. The reality, however, is less glamorous. Buying a home is a complex process and there are some important steps to complete before you can finally “turn your own key”.
With our information on home ownership, we want to help you connect your pie-in- the-sky dreams with a grounded reality. There’s a lot to cover, but we’re going to break it down over the next few weeks, sharing the expertise we’ve developed over decades of helping Jamaicans turn dreams into reality. Today, we’re starting with the basics. Welcome to mortgage 101!
Introduction
The Down Payment
This is the very first step on your home- buying journey. Your mortgage will cover the majority of the cost of your home, but first you need to demonstrate your commitment by putting your money where your mouth is. You will generally pay your down payment to your seller, and in Jamaica down payments are usually 10-20% of the total cost of the property.
Even before you’ve identified a property, you’ll want to start setting your down payment aside since it will help you get clear on what you can afford.
The Mortgage
Your down payment is not the only factor determining what you can afford. You also have to think about the monthly payments that you’ll be paying for anywhere between fifteen and thirty five years. You’ll be paying off both the principal (the cost of your home minus the down payment) and interest. NCB has a mortgage calculator for just this purpose.
Making the Offer
Now that you know what you can afford, it’s time to start looking. Are you going for a bachelor(ette) pad in the centre of the action? Or are you looking for somewhere quiet with a big lawn for the kids to play in? Maybe a vacation property within minutes of the beach?
Get a realtor who can guide your search for a property that meets your needs and fits your budget, then make an offer. It’s a good idea to secure a real estate lawyer to streamline your interactions with the seller.
Valuation and Surveyor Reports
The next major step is having valuation and surveyor’s reports done. The property may look great, but you wouldn’t buy a car without checking under the hood or taking a test drive. This is a much bigger investment, so best to dot your ‘I’s and cross your ‘T’s.
There’s a lot to consider in assigning value to a property- the size of the house and the land it sits on, the neighbourhood, the age and condition of the structure- that’s why you need a report prepared by a qualified valuator.
The surveyor’s report will locate and mark out the boundaries of the property and ensure that all requirements of the land title have been met. You can find a list of reputable valuators and surveyors on the NCB mortgage portal here on our website.
Homeowners’ Insurance
Homeowner’s insurance is an important part of the mortgage process, but even if it wasn’t, it’s a smart choice. In our hurricane prone corner of the world, you have to take steps to protect your investment, not to mention the risk of fire, flood and so on. Disaster is hard enough, insurance gives you some piece of mind in the face of the unexpected.
Most policies cover a fixed amount in the event of loss, so be sure your policy is compatible with the value of your house. And if you do improvements or expansions, update your insurance accordingly. If you’re not sure where to start with looking for insurance, don’t worry, many mortgage providers offer insurance or can refer you to reputable partners.
Conclusion
Finally, don’t forget the fees! There are a range of additional fees associated with buying a home, sometimes called closing fees. Together, they can come to a substantial chunk of change, as much as 10-15% of the total loan amount.
Examples of closing fees are stamp duty, legal fees (these usually range between 2 and 6% of land value, plus 16.5% GCT), valuation and surveyor’s fees, as well as an application fee of around 2% of the loan amount. Make sure you figure these into your budget so there are no unpleasant surprises.
An NCB mortgage representative can help you calculate your closing costs. Those are the basics. Of course, there’s more to it than the information we’ve provided here, but we’ll be back next week with more.