Growth & Jobs | Saving to buy a home

FOR MANY Jamaicans, the dream of owning a home can feel daunting, but Karon Lewis, client relationship officer at JN Bank, says ... if someone is being strategic, home ownership is more achievable than one might think. From budgeting wisely to cutting expenses and growing your income, he says disciplined financial habits can bring people closer to unlocking the door to their own home.

“Home purchasing is a special undertaking which has some upfront costs, and you are required to have some amount of equity in the transaction; equity being the deposit that you make, among other payments. So, as much as banks will offer 100 per cent financing if you qualify, they also like to see where you have equity in the transaction, to demonstrate that you have a vested interest in it, because you won’t want your five or 10 per cent deposit to go down the drain,” he explained.

Lewis added that it is also a requirement coming from the developers and the vendors that home buyers have at least10 per cent of the cost of the property, and there are other fees related to the home purchase for which persons will have to save.

He outlined a few steps that aspiring homeowners can take to be financially prepared for the purchase.

GET PRE-APPROVED

“The first thing you want to do is to meet with a mortgage officer at the bank and get pre-qualified. They’ll take into account your current or your existing debts and see how much proposed debt you can take on within their debt-servicing ratios. This will help you to understand how much money you can access on paper versus what you can actually afford, based on your budget and expenses,” he stated.

DETERMINE YOUR BUDGET

Lewis said that based on the amount that someone is pre-approved for, and more importantly, what he/she can afford, potential homebuyers should determine a budget to save the required upfront amount for the transaction.

“For example, if the house is for $20 million, then you would need to save 10 per cent of that cost for the deposit only, which would be $2 million.” he explained, “and more to take care of other transaction costs, such as the closing costs, surveyor’s and valuation reports and legal fees.”

SET A SAVINGS GOAL

Set a savings goal based on the deposit and costs outlined above. In addition, home purchasers should assess their income to ensure that they can comfortably cover the mortgage and any associated monthly costs. A mortgage calculator, Lewis said, found on the websites of several mortgagors, can help buyers have an idea of what their monthly mortgage would look like.

CREATE A BUDGET

After setting a savings goal, the next step, he said, is to create a budget, to include earmarking a set amount towards the home purchase every month. He also recommended that they track expenses, cut unnecessary spending, and put extra savings towards the mortgage savings, as this would result in them reaching their savings goal quicker. He stated that persons may consider side gigs, saving bonuses, and opening high-yield savings accounts to increase their income.

“Based on your savings goal, you will have to assess your current budget to determine how much you will allocate monthly towards saving for a home. You may want to cut down on certain expenses, which may include eating out less, cutting back on beauty and maintenance costs, and so on,” he said.

IMPROVE YOUR CREDIT SCORE

Although Lewis recommends that people repay debts on time and in full, he said there is a caveat to accessing credit that he wants persons to realise.

“Poor credit does not always preclude you from accessing financing, and each person is assessed on a case-by-case basis. Let’s say, for example, you took a loan and you were paying on time and in full for five months, but in month six you lost your job and you were unable to pay for another four months. Yes, you’d have had those delinquent payments on your record, but at the same time, the bank would not be hesitant to enter into another lending arrangement with you, because you had shown one of the important ‘Cs’ of lending, which is that you have character, because you didn’t leave the loan there to just languish, and you started paying again as soon as you were able to,” he explained.

He said in a case such as that, the bank would not be hesitant in extending financing to that person.

Lewis emphasised, however, that once one is in a position to pay their debts, it is important that they do so every month.

EXPLORE MORTGAGE OPTIONS

“This is very important because you don’t want to go into this thing blindly. You want to always approach the home acquisition process from a place of being well informed. That means you’re going to do your assessment to see exactly what is out there, what the banks are offering, what the interest rates are. And not only the interest rates, but your monthly payments for the duration of the mortgage, to include additional payments like peril and life insurance,” he said.

He further encouraged prospective homeowners to ask their mortgage officers about everything, and arm themselves with the relevant information before taking on the commitment.

TAKE ADVANTAGE OF ASSISTANCE PROGRAMMES

Lewis also advises potential homeowners who earn a salary, to check in with their human resources department to see if there are any grants or subsidies that they can benefit from throughout the home acquisition process. In addition to this, he noted that, if eligible, they should also take advantage of their benefits from the National Housing Trust (NHT).

“The NHT has the Contribution Refunds Towards Deposit that you can apply for, that you can use to cover some of your fees. Arm yourself by asking the pertinent questions, so that you’re going into this thing well informed and you’re able to take on this new milestone that you want to achieve at some point in your life,” he said.