Saving Towards The Deposit For Your Home

As the housing market in Jamaica continues to strengthen; and mortgage interest rates remain relatively low, many Jamaicans are seriously planning to purchase a home this year.

However, home purchase is a very important undertaking, especially when one considers the major financial costs involved. And, in many cases, prospective homeowners are unaware of the different types of fees they will be required to pay, as they set out on their real estate acquisition journey.

Petal James

Petal James

Petal James, head of mobile banking at JN Bank, says among the associated fees is the deposit, or down payment, which is normally required by vendors upfront, in the home purchasing process.

She noted that under the Mortgage Plus product at JN Bank, which offers 110 per cent financing, potential homeowners no longer need to find a deposit.

“Mortgage Plus, which is a part of our DYM suite of products, offers persons all the financing they need to purchase a home and cover other related expenses. This means that qualified persons, who choose this mortgage option, will not necessarily be required to make out of pocket payments when purchasing a property,” she said.

“However, while this product is available to all qualified persons, there are eight other options under the Design Your Mortgage (DYM) promotion, because we recognise that everyone is different, their needs are diverse, and so, they may choose a different route to financing their homeownership dreams.”

Miss James said for those persons who choose a different financing option to purchase their home, knowing the various fees and payments necessary to complete the acquisition is critical.

“Let’s say you’re interested in purchasing a home for $8 million, which falls in the mid-income market segment. That means the deposit would be five per cent, or approximately $400, 000,” she said, explaining that some vendors request as much as ten per cent of the going purchase price.

Miss James further pointed out that there are additional costs that are not readily known by some prospective home buyers.

Jerome McPhail, real estate agent at Re/Max Elite concurred with Miss James, noting that the additional fees to contemplate are the closing costs, escalation fees, and legal costs.

“Some buyers are aware of the deposit, but many are unaware of the fact that in some instances, they will also need up to 25 per cent cash, up front, to cover the cost of a series of professional and other fees,” Mr McPhail explained.

He said these costs include approximately three to five per cent for the closing costs and five or ten per cent for escalation fees. Then, there are also the legal fees; transfer tax and stamp duty, which could amount to an additional four per cent of the going purchase price.

Mr McPhail noted that on that basis, someone purchasing a home valued at $8 million, could be required to pay about $1.6 million at five per cent, for the deposit or $2 million, at 10 per cent for the deposit, when taking into consideration all the associated costs.

Against that background, Miss James said it is important for prospective homeowners to save in advance to meet their deposit and the additional fees. She also estimated that, it could take approximately three years, for the average person, who wishes to purchase a home in a middle-income community, to save the deposit.

She said one practical step towards saving for the deposit include preparing a budget and sticking to it.

“Avoid spending on non-essential items and impulse purchases, as this type of spending impacts negatively on your ability to save and will delay your dream of owning your home. Open a separate bank account, ideally a high-earning savings account and set-up an automatic pay day transfer, as well as, make top-ups whenever possible,” Miss James advised.

She said it is important to ensure that this “home purchasing account” remains off limits no matter what. And, prospective home owners are also advised to save 100 per cent of any windfalls or unexpected cash inflows.

“Your NHT refund, or a nice year-end bonus, are perfect examples,” Miss James advised. “Therefore, use those funds to increase your savings. And, while it is tempting to splurge a little, even as you save a little, achieving a down payment for real estate acquisition requires a lot of restraint. Hence, you should be realistic, and examine every source of expenditure, including your day-to-day expenses, and one-time cash infusions to determine how much you can really save.”

“The end product, owning a home of your own, will be a most rewarding achievement,” she affirmed.

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