Getting a house loan

Before you actively start your property search, it is necessary to study how much you can afford. It is important to determine what your down payment, closing cost and what your monthly payments will be. Common practice in the industry is that a 10% deposit is payable on preliminary agreement. Look at various home loan options and check what interest rates apply. All local banks provide a detailed assessment before suggesting a specific package. In the case of standard home loans your repayment should be in the region of 25% to 30% of your gross income, with a maximum lending term of 40 years. You can borrow up to 90% of the purchase price or completion costs with the property being purchased offered as security. Once you have established the above, you are in a position to know exactly the price range you should be looking at.

The next step would be to determine how long you expect to live in the new home. This decision will not only affect the home you look at, but also the type and term of loan you choose. When a quotation is being done ask your bank what fees typically are included in the finance charge computation, and what fees may be charged separately at closing.

How much should you budget to own your own home?

Apart from the down payment, the five largest expenditures involved with the purchase of a home are usually your monthly loan repayment, home and life insurances (annually), bank processing fees (one time), notary’s fees (one time) and stamp duty (one time). Obviously, the amount of your repayment depends upon your down payment, rate of interest and the price of the property.

For example, a Lm 45,000 (€104,821) loan at a 5% interest rate for a 35 years period will run approximately at a repayment of Lm227.70 (€529.91) per month: the interest rate charged varies according to the Central Bank base rate.

What about taxes? If you are purchasing your sole primary residence then stamp duty payable is 3.5% on the first Lm 30,000 (€ 69,881) and 5% thereafter, otherwise the rate is 5% in all other cases. A local real estate agent can help prospective homeowners refine these figures.

At this stage we should keep in mind, that home ownership is not just a one-way street, that is, aside from spending money, homeowners also profit from their property. Of course, the primary benefit is capital appreciation that builds from year to year. A home, apart from being a place that provides shelter, is a profitable investment, and the rising value of the property provides another “savings” account. So, when it comes to investing in a new home, remember one thing ... the purchase of a property requires a lot of budgeting and planning.

Tomorrow: What kind of property is right?