A Millennial’s Guide to Purchasing your New Home In Trinidad and Tobago
It’s 2019 and it’s a millennial’s world!
It is projected globally that millennials will account for 45% of home ownership in 2019.
In Trinidad & Tobago, real estate is largely tied to oil prices where prices fell by 20% between 2007 and 2009, partly as a result of new legal restrictions on foreign investment, effects of the global financial crisis and collapse of CL Financial.
Despite a short recovery in 2015, property prices declined again following plummeting oil prices in 2016. According to statistics from the International Monetary Fund, Trinidad & Tobago’s economy is projected with economic growth of only 0.2% in 2019. Therefore, local real estate market is estimated to remain volatile with a steady interest rate of 7.5%.
As a first-time home buyer, understanding the impact of these trends allows for insightful decision-making should you take that leap towards home ownership.
Believe it or not, if you think you’re a complete novice when it comes to buying properties, you just may know more than you think. For anyone who has played a lengthy and even frustrating game of Parker Brother’s Monopoly would have definitely gathered important real estate principles without even realising it. Much like in the real world, purchasing a property in Monopoly depends on strategy – having the wisdom to identify a property of value, and leveraging as much benefit as you can from it.
What do I need before Buying a Home?
Assessing Your Current Financial Situation
Set up a budget. Identify your monthly income, savings and expenses – groceries, utilities, taxes, entertainment and transport. Banks do not extend debt beyond 40% of your income so, you must pay out-of-pocket to cover the down payment. Even if you choose 100% financing which some institutions offer, you will be subjected to fees owing to mortgage lenders and attorneys.
As a new home buyer, the last thing you want to be is house poor – where mortgage payments are financially overwhelming, and your standard of living has dropped.
If you don’t have sufficient cash in a monopoly game, you need to pass GO several times to build up your cash pool. In the real world, this takes the form of starting a property saving account to build your savings, considering a smaller property within your budget or renovating a fixer-upper which can be less debt. However, renovations may incur substantial costs which can be a hassle.
What is Credit History?
Your financial situation can be read as a story by the mortgage lender who investigates your credit history –accumulation of past and existing loans, personal information, and any course of action taken against you to pay off any debts.
How do I check my Credit Rating?
Financial institutions use your credit history through an Automated Credit Bureau – TransUnion, to assess the level of risk involved in providing you with funding for your home and whether you will be able to consistently meet your financial obligations based on your history with past loans.
If your credit history is tainted with late loan, credit card payments and other issues, you can solicit advice from your mortgage officer to improve your credit to access a mortgage in the future.
How much do I Pre-Qualify for on a Mortgage?
Once your credit history is in good standing, you can look towards a pre-qualification interview with a mortgage officer allowing you to identify how much funding you qualify for depending on:
- Job Status
- Income level
- Current liabilities – loans, credit cards, existing debt
After pre-qualifying, you will be issued a pre-qualification certificate which details the mortgage value you qualify for. You can now solicit the services of a real estate agent to assist in the acquisition of your dream home.
What to look for when Finding a Real Estate Agent?
A real estate agent also referred to as a buyer’s agent can readily assist you in the buying and closing process as well as give you an upfront explanation of the paperwork and fees. Real estate agents provide you with listings – properties listed for sale in publications or websites.
When looking for a suitable buyer’s agent, be sure to consider the following:
- Good Track Record – you will want someone who has years of experience in real estate with a proven track record of sales to find the home you’re looking for.
- Qualified –Top skills to look for are communication, negotiation and someone who patient is as being a first-time buyer, you may have a lot of questions.
- Knowledgeable –Make sure and hire an agent who is knowledgeable about different neighbourhoods, prices and can provide a wealth of insight into the area (s) you may be looking to live.
- Passion and Professionalism – you will be spending a lot of time with your agent. Hire someone who is professional, amicable and passionate about what they do.
You can access an agent at https://propsnoop.com/agent-list-details/
How to Find My Dream Home?
There are substantial factors to bring to your agent’s attention when searching for the property you wish to buy.
- Income –Find a property within your pre-qualified amount
- Neighbourhood–Depending on your lifestyle and future goals. What neighbourhood best suit your preferences?
- Amenities – These refer to the facilities that make an area attractive to you – safety, traffic congestion, proximity to work, school or family as well as drainage, access to transportation and public utilities.
- When playing a game of Monopoly, we tend to purchase properties that yield that largest rental value. Likewise, when buying your home, consider the market value of the area you choose to live in. Can the property command a high rental price? Does it have a high market value should you choose to lease or sell?
- Familiarity – You may want to choose a property in an area you may already be familiar with so navigation around the surroundings will be convenient.
Making an Offer
Once you negotiate and place an offer an Agreement of Sale is drawn up between you and the seller. This does not illustrate ownership of the property but guides the transfer of ownership between buyer and seller. The Agreement of Sale details:
- The names of the buyer and seller
- Description of the property for sale
- Price of the property agreed by both parties
- Completion time
- Documents that need to be submitted to process the sale
- Contingencies – particulars such as an accurate property market value appraisal and house inspection that, if not up to standard allows you to walk out of the deal and secure your deposit.
- Other pertinent information regarding the sale of the property
Your real estate agent can draw up the Agreement of Sale between the seller of the property and you. In some cases, particularly for first-time home buyers, an attorney can be used to draw up this document. In either case, as a first-time buyer, it is advised that an attorney approves the Agreement of Sale to make sure the particulars are legally valid and sound.
Why do I need an attorney for Home Ownership?
It is necessary to solicit the services of an attorney to ensure that as a first-time home buyer you will not be taken advantage of. Acquiring a home usually entails a lot of complex paperwork. Therefore, it is always helpful to have your attorney guide you to ensure that everything being presented to you is legitimate and conduct your title search.
What are Title Searches?
A Certificate of Title for a property shows legal ownership and attorneys perform title searches on the property in question in order to ensure legitimate ownership by the seller and there are no encumbrances attached to it such as outstanding mortgage payments, deed restrictions, or claims on the land that will prevent sale or lessen the property in terms of value.
Title searches usually takes between 2-3 weeks to complete of which your attorney will inform you of the associated fees.
How do I calculate Market Value of my Property?
As you’re getting your title search and documents prepared your mortgage lender will provide you with a list of accredited valuation firms. The valuation company will inform the mortgage lender on what the market value of the property is against others in the area.
A Property appraisal involves looking at:
- Size and condition of the property – land space, no. bedrooms, bathrooms etc
- Comparable sales in the area
- Risks – Environmental, crime, flooding
- Inspection issues if any
If the appraisal states the property is worth the selling price, then you mortgage loan will move forward. If the estimated market value of the property is lower than the selling price, the lender may withhold financing. In this scenario, there are a few options available to you with regards to proceeding with your mortgage. (see post on Your Mortgage Guide: Insights into the Largest Financial Investment of your Life.)
Your mortgage lender will also inform you of service fees payable to the valuation company.
Why do I need to Inspect my Property?
Inspection is necessary to ensure the property is safe, conducive to living and up to code as per governmental housing regulations. Property inspectors evaluate the condition of:
- Visible parts of the roof
- Electrical wiring
- Heating/cooling system
- Structural cracks and safety hazards or issues
Once the house is successful in the inspection process, you will receive a report of the findings which you can submit to the seller of the house, to address any significant issues and to your mortgage lender.
Closing the Sale or Conveyancing
Conveyancing involves gathering your paperwork, acquiring your mortgage loan, settling the terms of the Agreement of Sale, paying off outstanding fees and getting the keys to your new home.
Ensure you have the necessary funds to cover these costs. Your mortgage lender will give you a breakdown, however, it is good practice to have a little extra in the event of your lender’s underestimation or “hidden fees”.
Obtaining a WASA certificate is critical to show there are no outstanding water utility payments on the property and all receipts and accounts are up-to-date. This can be retrieved at any WASA customer service centre.
Your mortgage lender or attorney will also advise you on applying for Stamp Duty Assessment from the Board of Inland Revenue. Once your mortgage loan is approved, completion of sale can occur where the seller is paid. Both parties, with a witness sign and execute the Deed/ Memorandum of Transfer before a Commissioner of Affidavits. Transfer of Deed and Certificate of Title are submitted to the Land Registry Department who prepares a Return of Ownership showing the change of property ownership for taxation purposes.
Once you have settled your Agreement of Sale, ownership of the property is transferred to you and it’s time to settle the seller, agent and mortgage lender have been paid their relevant fees.
Though a lot of people dream of reaping the benefits of homeownership (see post on Renting vs Buying a Home: Two Lifestyles, One Choice!) it takes time to acquire a home. Therefore, assess your financial state thoroughly, have your documents, legal counsel and real estate professional on point to ensure the process is smooth and to guide you correctly.