Home' Trinidad and Tobago Guardian : June 15th 2014 Contents Client Situation
Janice a 29-year-old supervisor
has saved enough money to
make a 10 per cent down pay-
ment on her first home. She
recently discovered that she
would need to have an addi-
tional 5.0 per cent to cover closing costs.
She has no idea what these costs entail and
if she should take a loan to raise the money,
as she is worried that by the time she has
these funds property prices would be much
higher and she would be playing catch up.
Closing costs depend on the purchase
price of the property and the amount of
money the financial institution has
approved to lend her.
If she was planning to purchase a
$1,500,000 property and saved $150,000
but the mortgage lender qualifies her for
a $1,000,000 loan she will have to come
up with $500,000 (not $150,000) plus clos-
ing costs to acquire this house. If the price
of the house or apartment she finds costs
less, say, $1,000,000 then she is in a good
position, which means that her $150,000
will cover the 10 per cent inclusive of some
or all of the extras.
A point to note with this latter situation
is: even though she qualifies for a loan of
$1,000,000 the financial institution may
not lend her 100 per cent of the purchase
price, as she must share in the risk by com-
mitting some of her own money to the
One of Janice s challenges is that she is
trying to hit a moving target, as the property
price will change from year to year. Further,
as she gets older the time she has to repay
the loan is shortened and, as such, the
amount of money she can borrow will
reduce holding her salary constant.
If her savings programme is aggressive
enough she may be able to raise the money
and still lock in a good price. She could
look for something cheaper, which may
mean a property that is located further
from the busy city areas.
She should consider that her first pur-
chase doesn t have to be her dream home
as she could trade up later in life when her
income, savings and property values
If she decides to borrow the extra 5.0
per cent to cover closing costs she should
bear in mind that the lender may not have
included this loan payment in calculating
her debt service ratio (DSR) and thus she
may or may not qualify for the same mort-
gage as a result of this new obligation.
Some of the closing costs include:
Valuation fees: The lender would want
to get a professional to value the property
to ensure the price is in line with the mar-
ket; if the valuation comes in higher than
how much the vendor is asking then this
would be to her advantage.
Legal Fees: Two legal documents have to
be done: the first is a "Deed of Conveyance"
which transfers the property in her name
and second the "Deed of Mortgage" gives
the lender rights to the property if she
defaults on loan payments. She must also
pay for title searches in the Red House to
ensure that the vendor does not owe money
on the property or if he or she has a clear
title of ownership to transfer to the buyer.
Stamp Duty: This is a tax on the legal
papers and if the property value is less than
$850,0000 then there is nothing to pay.
Anything above that value could cost any-
where between 3.0 per cent to 7.5 per cent.
Negotiation or Application Fees: She can
expect the lender to charge her around 1.0
per cent of the sum borrowed to cover
administrative costs in handling all of the
paperwork relating to the loan.
Property Insurance: The building needs
to be insured against fire and other risks
so that the debt can be repaid if the
unthinkable happens or the house could
Life Insurance: Some lenders require life
insurance coverage in event of death of the
borrower so that the loan can be repaid
with the proceeds of the policy.
Mortgage Indemnity: In cases where the
loan being advanced is greater than 90 per
cent of the property value the lender may
require an insurance that pays out in event
of default of loan payments.
Other costs: Some of these include but
not limited to: WASA clearance certificate,
repairs, moving costs, purchase of furnish-
ing, land or quantity surveyors fees and
escrow fees to name a few.
best investments she will ever make but
one that can come with a myriad of prob-
Nicholas Dean (Cer-Fa) is a financial
coach and mentor who is the managing
director of the Financial Coaching Centre.
He can be contacted at:
JUNE 15 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL PLANNING | SBG9
and closing costs
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