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Qualifying for a Mortgage

Owning your home is one of the biggest decisions you are likely to make. For many it is like a dream come true. It is therefore important that the right questions be asked before you get into such an investment. Three key questions must be asked:

1. How much cash injection is required into the purchase?

If you are purchasing a property comprising land and building, a minimum of 10% of the selling price is normally required. However if land is being purchased, a minimum of 20% of the selling price is usually required.


2. Other than the downpayment are you required to meet any other costs?

It is considered adequate to estimate about 10% of the cost of the property to cover additional costs associated with the purchase of property. These costs are usually:

-Valuation report fee (note that Banks require that valuation report be done by a valuator on the Bank’s panel)

-Negotiation or processing fee

-Mortgage indemnity insurance (if needed). If you are purchasing land and building Bank can provide up to 90% financing. Financing above 75% is covered by mortgage indemnity insurance which is a one-time insurance paid to the Insurer.

-Costs to prepare the Deed of Conveyance and Deed of Mortgage along with stamp duty charges associated with transfer of the property from the vendor to the purchaser.

-Life Insurance (optional)

-Fire Insurance


At First Citizens the client would be provided with a Mortgage Loan Worksheet at the initial meeting which would provide an estimate of all costs associated with the proposed purchase including the deposit required to be made. In so doing the prospective homeowner has a good idea of the cash flow injection required upfront to complete the purchase of the property. Very often a client comes into the Bank and indicates that he has the 10% deposit but when provided with the upfront closing costs he may be a bit surprised. Hence it is important that the buyer knows what he is getting into so that there are no surprises along the way.


3. The next big question is … What is the maximum amount I can borrow and how much of my salary can go towards my loan instalment?

At First Citizens our normal lending criteria allows for financing up to 75% of the lower of the cost or value of the property. However up to 90% financing is available for the purchase of house and land with mortgage indemnity to cover the excess over 75% financing. It should be noted that the mortgage instalment should generally not exceed 30% of gross monthly income i.e income before tax and other deductions.

If you presently maintain other loans including credit cards, hire purchase accounts then the monthly instalment on the proposed mortgage facility together with your existing loan instalments should not exceed 40% of gross monthly income. In the pre-qualification process age of the applicant is a factor in that the term of the mortgage loan should not go beyond the retirement age of 60 or in the case of self employed professionals age 65.

This process really enables you to pre-qualify yourself so that you could determine upfront what price range of property you should be looking for given your level of income. Armed with this information you can now engage your real estate agent in sourcing properties within your price range.

 

 

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