We’re going to evaluate the Home Buying Process in Guyana, as a continuation from our recent blog article ‘Renting Vs Buying’. To reiterate there’s no “right” or “wrong” time to buy a home, it’s all dependent on when you are ready personally and financially.
TV shows like Property Brothers make the home buying process look easy and seamless yet be a bidding war. We also know that most first time home buyers need to go through the Bank for financing unless they inherited or successfully saved a large amount of cash.
As a first time home buyer it’s essential to be mentally and financially prepared for the prices of homes – which today (based on current local market trends in Guyana) starts at roughly 10MM for a completed land and property which will still need major renovations.
In reality, this is an intricate process that takes patience and preparation, however it can be covered in 6 easy steps. We encourage you to sit and think of questions you’d want to ask for every stage.
Home Buying Checklist
1. Determine How Which Home You Can Afford
Identify a realistic budget for yourself so that you’re able to look at properties that are attainable.
In our last blog, we talked about determining your Debt Service Ratio. This simply means lining up your income against your monthly expenses which includes the new mortgage payment and determining whether your expenses (both current and expected) fall within 40% of your earnings. This is the percentage most local Banks use to determine how well you will service the loan given your current salary and expenses. So, if your salary is 100K per month then you know that your fixed monthly expenses should not exceed 40K.
Keep in mind that you’ll want to budget for things such as furniture for your new home and you’ll inevitably have some routine maintenance expenses that come with home ownership – so cater for breathing room in your budget so that you’ll be able to enjoy your new home without having it become a source of financial stress.
Of course, Demerara Realty can certainly help in determining what price range you should be looking within. Visit www.properties.gy – it has a great Mortgage Calculator.
2. Save For A Down Payment
Here’s where your disciplined savings habits work for you, since a sizeable down payment will save you a good chunk of money over the life of your loan. Points to remember are:
- Most local Banks require a down payment usually between 10 – 20% of the value of the loan e.g a 10MM loan will require a downpayment of between 1-2MM but as can be seen from the previous example, the Buyer could only afford a mortgage payment of 40K and that was with a downpayment of 3.2MM – so the higher the downpayment, the less the monthly mortgage commitment and the more cash in hand over the life of the loan.
- A bigger down payment can sometimes result in a lower interest rate. Whilst this varies on the individual lending policies of the Bank, the bigger the Buyer’s downpayment, the less risk the Bank has with the Buyer so their “loan to value” (LTV) ratio decreases. This is a great way to negotiate with Banks on a better interest rate.
- Depending on whether or not the Bank uses a reducing balance method, the bigger the initial payment against principal, the less interest a borrower will pay over the life of the loan, potentially saving thousands of dollars – which results in smaller monthly payments because you owe less on the house.
- Smaller monthly payments could also positively influence future borrowing power, meaning that you have more disposable income and you’re more likely to qualify for further financing such as a car loan.
We therefore encourage you to start saving. A few quick tips on saving:
- Map out a budget to track your outflow of money and cut out on non-essential purchases – as my Mom taught me to save by saying “cut your eyes on nice to have and live with need to have”.
- Set up automatic savings – most Banks can setup accounts to which automatic transfers can be done from one to the next and helps you to “pay yourself first” and save.
- Look for ways to supplement your income – allows for extra cash to put towards that down payment.
3. Find A Real Estate Agent You Can Trust and a Home You See Yourself In
Real Estate Agents do so much more than search out prospective homes to find you your dream home. At Demerara Realty, we have information about the market. We can tell you whether an asking price is worth it for a property. We can tell you about the neighborhood and can even give you financial advice on which Banks would be best for your budget. We look out for our Clients’ best interest through essential guidance in the entire home buying process.
Of course, feel free to do your own looking too. You can visit our site – www.properties.gy to see what’s there or call us up as we may know of other properties being listed, through other Agents, that suit your criteria.
4. Choose A Bank / Lender
Ideally it’s advisable that you shop around for the best Bank – and what determines the best?
This is a step that you definitely want to take before you decide on a home or sign that Agreement of Sale.
Your Bank of choice should offer a competitive interest rate, loan type and term length. Some Banks also offer creditor’s life insurance – so that in the event of the death of the primary borrower, the loan is covered in its entirety. In some instances, fire / flood insurance payments can be incorporated into the monthly mortgage payment as well.
Once you qualify, the Bank can then issue a letter to the Seller indicating that they will finance you for the purchase, thereby making the process faster.
Again – shop around since it’s in your best interest to have these potential lenders compete for your business.
Armed with this info, your next step is to …
5. Make the Offer, complete the Inspection and Sign the Agreement
Once you’ve shown interest in a property and made an offer to purchase, it’s at this juncture that the Bank may more than likely request that an appraisal, inspection or valuation be done to assess the house’s integrity, fitness and value.
Keep in mind that a home inspection protects the Buyer from unforeseen costs such as repairs that might be needed to the foundation and gives a good idea as to the true value of the property. The Buyer can then use these issues to bargain with the Seller for a reduced overall purchase price.
At this point, the Buyer, Seller and their respective Agents can determine the best payment and possession terms for the Agreement of Sale whilst the letter from the Bank stating their willingness to undertake the financing to the Buyer, will suffice as confirmation of the purchase.
This is usually where the Seller may prefer to have the down payment in hand and the Buyer may opt to pay directly to the Seller rather than lodge with the Bank.
Once the Agreement has been signed and initial payments made, the Bank will ensure that the property is passed to the Buyer, through the use of their appointed Lawyers. This may be an additional fee either charged directly to the Buyer or incorporated into the Mortgage.
6. Close and Enjoy Your New Home
Once the process has been completed and the Title, Lease or Transport has been transferred to the Buyer’s name, be prepared to sign with the Bank appointed lawyers to complete the transaction – Congrats to you! Time to enjoy your home!
The overall time taken for this process is 2-3mths and the earlier you start shopping around for homes, the better so give us a call on 223-5555 or message on 640-5555 and let Demerara Realty guide you through this.