financial literacy series home ownership the dos and · – first-time buyers may be exempt •...

Financial Literacy Series

Home Ownership – The Dos and

Don’ts

February 27, 2020

Elbert Thompson, MBA, BRI, CRS, CIPS

www.cfasociety.org/bahamas

Agenda

• Pre-home ownership assessment

• Selection criteria

• Building vs. buying

• Financing your home

• Closing the deal

• Home construction and maintenance

• Q&A


Pre-home ownership assessment


Being prepared for home ownership

Dos

• Plan your strategy

• Get pre-qualified and

save

• List and visit properties

matching your criteria

and budget

• Assess and act!

• Save, save, save!

Don’ts

• Act impulsively

• Be indecisive

• Spend more than you

can afford


Selection criteria


Key determinants of a home purchase

• Location

• Topography

• Zoning

• Condition

• Price

• Utilities

• Closing costs

• Clear & marketable title– Attorney needed


Building vs. Buying


Buying an existing home

• Dos

– Use a BREA licensed real estate agent to represent you

– Buy early in the construction process so you can modify to your taste and negotiate savings

– Get an appraisal & home inspection

• Don’ts

– Just run after foreclosures

– Purchase a property without doing your due diligence on the area, quality of the construction

– Make deals with contractors/sellers you do not trust

– Involve too many cooks in your decision that don’t have the expertise for the decision


Building a home

• Dos

– Choose a contractor

wisely – get references!

– Obtain building permits

and insurance

– Keep track of all

expenses

– Secure building materials

• Don’ts

– Drag on the building

process for too long


Financing your home


Making sensible financing decisions

Do’s

• Understand how a

mortgage works

• Determine what you can

afford

• Shop around or seek the

help of a mortgage broker

• Pay off outstanding credit

cards and loans if possible

Don’ts

• Take out unnecessary loans

• Exceed a debt service ratio

of 40%


Fundamentals of mortgage financing

• Key definitions

– Down payment (Usually 5% or 10%)

– Principal

– Interest

• Types of mortgages

– Fixed rate: constant interest rate and periodic payments

throughout the life of the mortgage

– Adjustable rate mortgage: interest rate adjusts depending on

an index level (Prime +)


How much of a mortgage can I afford?

• Debt service ratio

– Monthly debt payment divided by monthly income

– Limit your debt service ratio to 40%

– Example: if your monthly income is $3,000, your

mortgage should not be more than 1,200

• Mortgage indemnity insurance may be needed


How a mortgage works

• Example:

– House price: $300,000

– $50,000 saved toward a down payment

– Interest rate: 5%

– Fixed rate mortgage

– Term of the mortgage: 25 years

– What will the monthly mortgage payment be?

• Mortgage calculator


Mortgage calculator - RT.xlsx

Where do I go to get a mortgage? –Banks, Credit unions, insurance companies, private

financing


Closing the deal


Closing costs to consider

• Bank mortgage origination fee

• Legal fees– 2-2.5% typically plus mortgage fee

• Government Transfer Tax (VAT) – Usually split between buyer and

seller

– First-time buyers may be exempt up to $500K

• Legal fees– Buyer and seller responsible for their

own fees plus VAT.

– First-time buyers may be exempt

• Mortgage indemnity insurance

• Real estate agent’s commissions – Vacant Land 10%; Developed

property 6%

– Usually paid by seller plus VAT

Amount Notes

Purchase price

$300,000.00

Down payment

$50,000.00

Mortgage $250,000.00

Bank fees $2,500.00 1% of mortgage

Legal fees $6,000.00 2%

Stamp tax $3,750.00 ½ of 2.5%

VAT $18,000.00 ½ of 12%

MDI $3,000.00 1%

RE agent commissions

$0.00 Paid by seller

Total closing costs

$33,250.00www.cfasociety.org/bahamas

Home construction and maintenance


Understanding home construction process

• Architectural plans– Approval from town planning

• Insurance

• Contractor outlines sequence of home construction– Excavation/ clearing of property

– Foundation

– Belt course

– Roof

– Windows/ doors

– Interior

– Septic tank/ waste disposal

– Finishing

• Inspection by lender-approved Quantity Surveyor

• Issuance of Occupancy Certificate


Ongoing expenses to consider

• Repairs and maintenance

– Create a budget line item, e.g. 1% of value

– E.g., plumbing, painting, roofing, appliances

• Home insurance

• Real property tax

– First time home owners exempt up to $250,000.00

• Home Owners Association fees

• Hurricane preparation


Q&A

Thank you!


Endnotes

• https://activerain.com/blogsview/2563816/first-time-buyers-in-harrisburg-pa--what-are-the-costs-

• https://bfsb-bahamas.com/providers/name/bank-of-the-bahamas-international/

• https://www.centralbankbahamas.com/download/039835000.pdf

• https://www.cibc.com/fcib/pdf/cibc-firstcaribbean-mistakes-home-buyers-should-avoid.pdf

• https://www.cibc.com/fcib/pdf/cibc-firstcaribbean-mortgage-document-checklist.pdf

• https://www.bankrate.com/mortgages/arm-vs-fixed-rate/


https://activerain.com/blogsview/2563816/first-time-buyers-in-harrisburg-pa--what-are-the-costs-

https://bfsb-bahamas.com/providers/name/bank-of-the-bahamas-international/

https://www.cibc.com/fcib/pdf/cibc-firstcaribbean-mistakes-home-buyers-should-avoid.pdf

https://www.bankrate.com/mortgages/arm-vs-fixed-rate/

financial literacy series home ownership the dos and · – first-time buyers may be exempt •...

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