Your Mortgage Guide: Insights into the Largest Financial Investment of your Life.
It’s an old French word that literally translates to ‘dead pledge’.
Except that today, we don’t call it death pledge; the financial sector calls it mortgage
Reason being, it was estimated that taking a mortgage to buy a parcel of land or house literally meant the debt lasted towards the end of one’s life.
A popular belief about mortgages entails that they’re literally a life sentence of debt and burden. However, understanding how they operate, it will be easy to identify options of acquiring the finance to purchase your dream home.
What should I do before a Mortgage Application?
You are required to put in a down-payment to show good faith and establish integrity on your end towards the investment. Depending on the mortgage lender and other factors, they may be willing to finance you 80% or 90%, which means you will have to cover the remainder.
Therefore, before looking for a property to buy and beginning the pre-approval process, it is necessary to have sufficient savings to make your deposit. You can research the selling price of various properties online such as https://propsnoop.com/buy-property-in-trinidad/.
Depending on the price range you are looking at, you can determine how much you need to save for your initial down-payment.
How long should I take the mortgage for?
It may be called a death pledge, but it is hardly likely you will be wanting to be in debt till the very end. Therefore, it is important to assess your working years left before retirement at age 60 to determine how long you will remain working to pay off the monthly premiums. Keep in mind that shorter mortgage terms mean higher monthly instalments and vice versa.
If you intend to be working beyond the retirement age and are able to show evidence of income, you will be able to access the mortgage for a longer period of time – 30 years or until you reach age 70.
What are Types of Mortgage Financing?
One additional item to consider is the type of loan financing you wish to undertake. There are two broad categories of mortgages:
- Mortgages with Property – for purchasing a house on a property
- Bridging Loans – purchase of land on which to build a property. Bridging loans takes the customer from land ownership to home ownership.
- Fixed Rate Mortgages – Monthly premiums with one fixed interest rate during the mortgage
- Adjustable Rate – Mortgages with interest rates that fluctuate
Should I use my Savings?
Using your personal savings does have the illusion of being debt free, however in the long-term it does not make financial sense due to a concept called Asset Accumulation. Assets, typically defined as “those things that you own”.
If you using your life’s savings firstly, what length of time will you have to save before you reach that goal? How many working years will you have available after you saved your targeted amount? Finally, how financially stable would you be when your savings have been depleted? Yes, you will have a house, but what liquidity will you have to sustain you?
To give you a modified definition of an asset – “something that you own, that you can use to generate revenue”. Investing in a property can be a source rental income and collateral for refinance or future loan applications.
What does Pre-Qualified Mean and Involve?
Getting pre-qualified by your mortgage lender usually involves an interview assess your financial situation and provide you with an amount which you qualify for. Typically, your mortgage lender requires the following to make that assessment:
- Job Letter from your employer stating the criteria that would affect your eligible amount – job title, salary, years of working service, job status – whether permanent, temporary or contract as well as full-time or part-time basis.
- Payslip indicating gross salary, monthly deductions and net income
- Utility Bill
- Two (2) forms of National Identification
- Banking statement showing deposits and current loan balances and monthly instalments
Self-employed applicants must produce financial statements from the last three (3) years showing revenues earned or a certified income statement produced by their accountant.
Pre-qualification can be performed within twenty-four (24) hours, where the mortgage officer will evaluate an applicant’s age, income level and current liabilities such as existing loans, to determine how much financing they are eligible to receive. Your officer will also be required to perform a credit check to determine the consistency and diligence with which past expenses and liabilities were paid.
You will be issued a Mortgage Certificate which shows a mortgage lender’s willingness to finance your dream home. This document is particularly useful when seeking an experienced realtor or building contractor as these professionals tend to work with pre-qualified home seekers due to their eligibility of receiving financing which indicates their service hours will not be wasted.
What happens during the Mortgage Application process?
Once you have identified a property within your budget and choice, made an offer with the seller which has been accepted, your mortgage application process can officially begin. To process your application your mortgage officer will require the following documentation:
- Agreement of Sale – document drawn between you and the seller indicating terms of sale
- Certificate of Title or copy of Title Deed which would have been searched by your attorney
- Valuation Report – Findings by the valuation company within twelve (12) which indicates the estimated market value of the property in question and provides insight as to whether the seller has overpriced the property.
- WASA Clearance Certificate – showing no outstanding water utility payments are due and all bills payable to WASA are up-to-date.
- Job Letter and Payslip – Showing the applicant’s employment status, history and income.
- Bank Statements reflecting loan and credit balances, also showing that the mortgage applicant has sufficient funds to provide down payment on the property.
- Recent Utility Bill
- If the property has been recently constructed, you will require a Certificate of Completion from the Local Government Authority.
- National picture Identification
- Life Insurance Policy – Security in the event of death of the borrower during the course of the mortgage re-payment period
Getting Approved for your Mortgage
Once your documents have been submitted and all the necessary checks, estimates and inspections are successfully processed, you will receive a Letter of Offer from your mortgage lender. This document asserts that the lender is extending mortgage loan financing to you and also outlines the terms and conditions about your new mortgage loan.
What are Fees and Costs associated with your Mortgage Application?
The process of qualifying, applying and drawing down of a mortgage loan can be a complex procedure which usually entails the following ‘hidden’ fees, which first time homebuyers may be unaware of:
- Down-payment –Whether the standard 10% or more will be one of several costs that you will need to budget for as this comes directly out of your pocket.
- Valuation Fees – to get the estimated market value for your dream home, you will have to pay the valuation company for their services.
- Handling fees – As happy and thrilled your mortgage lender is about owning your dream home, point is they are a business and they will be charging a fee for their services in getting the finance for your home to you.
- Lawyer’s Fees –You will have to cover those costs for the Title searches, preparing Deed of Mortgage, Deed of Conveyance, legal advice, effort and time put forth by your attorney.
- Insurance costs – costs to cover the security measures designed to protect you and your lender
What Security do I need for my Mortgage?
Although we may try to avoid the ‘death pledge’, the reality is that mortgages are long-term investments which span as much as 30 years.
Mortgage applicants are required to have life insurance to protect against death before the mortgage amount with interest is paid off.
Comprehensive Insurance usually depends on the market value of the property identified in the valuation report, so if any fires or environmental risks occurs, repair expenses are covered to return the property to its accredited market value.
Insurance is also taken out to protect the borrower in the event of disability – temporary and permanent, accidents, critical illness, loss of employment or any other legitimate cause which hinders the borrower’s ability to effectively and timely pay the monthly instalments.
Being a New Homeowner – How to Avoid Foreclosure
To maintain a good relationship with your mortgage lender and a healthy credit history, you should:
- Read the Letter of Offer carefully – It is legally binding. Read and understand what you are getting into before you sign, so you will know what action can be taken should your monthly payments cease.
- Be forthcoming with your mortgage lender. Your mortgage lender does not want to see you kicked out of your home. Therefore, should any issues arise that will affect your ability to pay monthly should be communicated promptly to gain advice on your options.
- Keep abreast of all mail and correspondence from your mortgage lender, seller, attorney or government agencies
- Manage your finances. Monthly instalments are a priority. Monitor your finances to ensure you have sufficient funds to pay.
The Mortgage process is quite a lengthy and complicated one. Assess your savings and choose qualified professionals throughout this journey to get you the most efficient service. Additionally, homeownership is a tremendous responsibility, so read and ask pertinent questions before signing documents and maintain order, so that your application and monthly premiums are relatively hassle free.