Housing and You…Applying for a mortgage; a $19M ‘turn-key’ home

Jun 23, 2013 News

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By Leonard Gildarie

While writing on housing last year and then resuming a few weeks ago, I have over time drawn on personal experiences to “drive home” the need to be educated.  I had paid dearly while building by not placing enough attention to detail.
Of course, one can argue quite convincingly, and rightly so, that if you believe that the effort it takes to learn is expensive, then try ignorance. Not knowing can cost you big time. Increasingly, it is becoming clear that Guyanese, like others around the world, want their own home. It is a natural progression like the idea that once you were of age, you either got married or moved out of your parents’ home.

Building a home is by no means a cheap venture. It will for many be the biggest investment at any one time for the family. It follows then that proper planning, research on prices, and host of other factors, including choosing a reliable and reasonable contractor will become real critical.
This week I learnt a couple of lessons, one of them the hard way.
A close relative of mine was in the hospital and needed blood. I had a cup of coffee and raced out of the house to attend to the business of the newspaper. During lunch, I rushed down to the Blood Bank on Lamaha Street to donate a pint of blood.
I never took the time out to donate blood before, simply because the thought was there that someone else would do it. After being interviewed, a staffer conducted the necessary tests and asked a number of medical questions. I am no stranger to needles so the process of attaching a tube to the arm was not much. About 15 minutes later, I was handed a Malta to drink and ventured outside where a relative was sitting. I was not feeling strange. About five minutes later, I started seeing black and then lost it. According to my relative, I just fainted. Needless to say, the rest of the day was kind of hazy. I slept like a log Friday night.
The lesson here is that I should have eaten something.
I was speaking to another relative who is now building a family home on the East Bank of Demerara. She and her husband are around 60 years old. Planning that home took months of research and quarrels as to how many rooms; the style of roof, what kind of kitchen cabinets and other little details. About eight months later now, the home is nearing completion, but the ride has been an exhausting and more than an expensive one for the family. She looked tired. Again, the point is that education and research are important in the planning process.
Last week, as questions poured in over the application process for a house lot from the Ministry of Housing and for a mortgage at NBS and the commercial banks. We were forced to address those issues.
With the process on how to apply at the Ministry behind us, we will address this week the requirements when applying for a mortgage.
Now, there is some good news. The banks and NBS have been facing a problem with liquidity, meaning that there is a whole lot of money deposited by customers that needs to be lent. Additionally, to spur the housing boom and ensure new homeowners find it more affordable, the rates have been reduced, thanks to a number of tax measures introduced by government that gave banks a little more breathing space. The bottom line is that new homeowners don’t have to worry much about the interest being repaid on mortgages. A $4M mortgage can see repayments around $20,000 monthly while up to $12M can be around $75,000. While the interest rates charged by the financial institutions were around the mid-30% range about a decade ago, this has now dropped to between 4.25% to over 7%, depending on the amount, the age of the applicant and the their salary.
As far as borrowing from the bank or NBS is concerned, there are two types of mortgages. The first is a mortgage to construct, renovate or extend, while the other is a mortgage to purchase a building.

Construction
The first is pertinent to if you were allocated a piece of land. In the case of wanting to construct a new property, NBS and the banks will require a copy of the transport, title or lease. In a case where the Housing Ministry has not yet given you the transport and it is being processed, you may not wish to wait. The Housing Ministry can provide you with a “Letter of Assurance” which can be used by the bank to show proof of ownership of the land where the structure is to be built.
You will also need to provide a detailed estimate of how the money you are asking for will be spent. The estimate is a critical piece of document that shows much will be spent on electrical works, foundation, labour, roofing, kitchen and bathroom and transportation. You will be required to, of course, provide a percentage of the total amount of the costs.
It would be worthy to note here that NBS and the banks can only lend up to $12M under the low income mortgage rates. Anything above that will have to be handled by the banks and will attract higher interest rates.
With regards to the estimates, and I want to dwell on this in another article, the financial institutions are familiar with the prices on the road. So your costs will have to be “reasonable”, if you know what I mean.
You will, of course, be required to submit an approved plan, from the NDC or M&CC or the Town Council. This plan shows what you are building, the size of it, the location of bedrooms, the bathrooms, doors, windows and even the patio. There are sanitary inspectors and other draughtspersons capable of handling this.
If you have a business, a statement of the income and expenditure will be required. If not, a letter from your employer showing years of service and salary amount (gross). This is important, as it tells the bank whether you have the means to repay the mortgage.
A passport-size photograph and identification card or passport will also have to be submitted.
You may also require a statement of your bank account, though this is discretionary.
I have received questions as to how long the mortgage takes to process. It takes, from my experience, about two to three weeks for the bank to approve the mortgage, and another six weeks for it to be processed through the local courts to ensure that the lender has a first hold on the property in case of problems. So prepare yourself for a two months wait. It can be less or a little longer.

 

Purchase
Now the other scenario is if you want to purchase a property outright…for example, one of the ‘turn-key’ homes being constructed by government. It is somewhat different from the above.
You will be required to submit photographs of the front and side of the building with the lot number affixed. A copy of the transport, title or lease is also required. You will also have to submit the dimensions of the land and building, to indicate size.
In the case of buildings other than the government’s ‘turn-key’ ones, a valuation report of the existing building and land will be required by the banks.
A copy of the agreement of sale between the buyer and seller will also have to be handed in at the time of the application. This shows the amount that the property will have to be sold for, the witnesses, and the signatures of the parties. The source of income for the applicant, including job letter or statement of income and expenditure, is also required along with passport photos and identification. The timeline is similar to the construction mortgage.
Next week, we will want to continue on the issue of building codes. This mandates you to build in a certain manner, away from fences, for instance, and how far your septic tank will have to be located, among other things. We will resume some time on other homes and services that the Housing Ministry may be offering.
On Friday, government announced that it will be unveiling a high income house, to be valued around $20M including land, that it also intends to add to the growing list of ‘turn-key’ homes.
In the meantime, enjoy the weekend, and think about donating blood…someone you love may need it. I will be returning in two months time again to give a pint.
Feel free to drop your comments to [email protected].

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