Closing a Sale - First Time Homeowner

Updated: 5 days ago

Finally my First Time Homeowner Blog Series has come to an end, and it’s time to close the hypothetical sale and get into that imaginary new property. We’ll try not to cry. To recap, these are the stages that I’ve already covered in the process:

  1. Intro to Real Estate: Navigating the Bahamian Market

  2. Mortgage Prequalification and Down Payment

  3. Finding a Property

  4. Making Mortgage Arrangements

  5. Looking for a Lawyer


Hopefully by now, I would’ve covered most questions that real estate newbies may have about the general process, but I couldn’t finish this series without covering what I’m sure is the most burning question: what price are we looking at?


Obviously, the upfront, monthly and closing costs will all vary greatly depending on the price of the property you’re looking at, but I’ll try my best to ballpark here. Admittedly, math and I aren’t the best of friends, so I’ll work with some nice round numbers. Let’s use the running example of $80,000 for a vacant lot or $200,000 for an apartment. Of course you can find properties for way less (especially on the family islands) or way more, but I consider these to be pretty realistic for middle class properties of their type in Nassau, and either way, the closing costs calculated below are also a good benchmark for anyone venturing into real estate for the first time, in my humblest opinion.


A six figure purchase can be pretty intimidating to look at, but don’t panic just yet. Remember that if you get a mortgage and pay a down payment, that amount will be deducted from your overall loan amount because you have already paid that portion of the property price with your own cash, rather than what the bank is lending you. For example, if you put 5% ($4,000.00) down on a $80,000.00 vacant lot, your actual loan amount will be $76,000.00. So let’s put those figures to work.



Pretty scary right? I know that these figures coming at you can feel like a tidal wave, especially considering that the upfront costs alone can be higher than some people’s annual salary. That’s why I keep reiterating that if you think this is something you want for the future, you need to start planning as soon as possible because it is far from an overnight process.


Again, I started seriously saving in my second-to-last year away at university, and only had enough saved for my down payment alone by the time I moved back home. After starting my first real full time job, that was when I started to save enough to cover my closing costs (legal, government and bank fees). Due to the pandemic my sale didn’t close until the late summer of 2020, so let’s estimate that the whole process of getting the funds together, finding the property and closing the sale, took me around three years; but we have to factor in that I was still a student earning minimum wage for two of those years and, in case I haven’t mentioned it before, was stuck in a whole pandemic for half of the third year.


But enough about me; back to the figures. There are a few things to take into consideration when looking at these numbers:


1. Remember that not all lawyers charge the same for legal fees and disbursements, so these are only estimates, but that’s the general range. The miscellaneous fees listed in the table also vary greatly.


2. As a first time homeowner, Bahamian citizens are exempt on VAT on the property conveyance of a free-standing home or apartment unit. If you are buying a multifamily property (duplex etc.), you will only be exempt from VAT on the portion in which you live.


3. Since the vacant lot in the example is below the $100,000.00 range, Stamp tax on conveyance would be 2.5% of the property price. If the property was over $100,000, this figure would be 10% rather than 2.5%. Assuming that the buyer and seller split the cost in this example half-half which is typical in a sale, your payment would be 1.25% of the property price. However, if the seller decides not to split this cost, you could end up paying the full 2.5% (or 10% if the property is over $100,000), resulting in a higher upfront cost.


4. You likely won’t pay this entire total figure all at once. The down payment is paid when you sign the sales agreement, and everything else is paid when the sale closes (however the bank will freeze the amount needed to cover the balance until the sale closes).


As annoying as the pandemic was in pushing my plans back, I should actually be grateful that it did so that I had more time to save in between. I think I paid my down payment in February 2020 and the rest of the funds didn’t come out of my account until September 2020. Although the bank had the full balance frozen on my account from the day I signed the sales agreement, it still felt less overwhelming to have those two large payments split up that way and allowed the rest of my savings to accumulate in between to recover some of the costs.


1. It is possible to get loans for as low as 5% down payment from certain banks especially for vacant lots which would significantly reduce your upfront costs, so be sure to inquire with various banks and lending institutions to make sure you’re getting the best deal.


2. For land, interest rates are normally higher and payback periods are shorter than for developed property. This can result in a heftier monthly repayment.


3. The bank will also require you to have life insurance which varies based on age and individual health factors, but may range from as low as $30 to $150 or more. This monthly cost can be wrapped into your monthly mortgage payment.


4. Looking at these figures on your own can be extra daunting. Remember that it’s common to buy property as a couple or with family members or business partners splitting the costs and subsequent profits.


Now that the hard part’s out of the way, this next part should be a relief to anyone with a general knowledge of the Bahamian rental market. You’ll notice that your monthly repayments are not that far off from average monthly rental prices.

Vacant Lot - $80,000.00

Apartment - $200,000.00

Interest Rate

6.5%

5%

Payback Period

15 years

30 years

Total Monthly Payment (including Mortgage Indemnity Insurance)

$783.17

$1,065.28


Note: different banks have various payback periods and charge different interest rates which may also fluctuate, so these are not set in stone by any means. Take these figures as a general estimate.



So if you weren’t sure already, it should be more obvious why real estate is often referred to as an investment. You are paying a large amount upfront with the intention of, first of all, owning the property in full once you’ve paid off your loan to the bank, and second of all, in many cases, having lower monthly costs than renting.


Of course there are pros and cons to both purchasing and renting, but that’s for another blog. The bottom line here is that as difficult as it may be, it is possible in many cases to become a property owner, whether it’s at age 23 or at age 40, but of course the younger you start saving towards it, the more money you’ll accumulate to go towards your upfront costs. You’ll need a good saving strategy, a great support system and an even better agent to help you along the way. Get in touch with a Real Estate Expert from 1 OAK Bahamas to ensure that you have expert advice from your first step to closing day, and remember to keep up with the rest of my blogs for more personal advice throughout my building journey from interior decoration to equity to finding tenants to property value enhancement.


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