Closing a Sale - First Time Homeowner Series

Finally my First Time Homeowner Blog Series has come to an end, and it’s time to close the sale and get into that 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?

Aside from the down payment which may range from 5-20% of the purchase price, you should also factor in the below fees as an estimate for closing costs:

Fees

• Stamp tax on conveyance (2.5%, 4%, 6,%,8%, 9% or 10% of property price): 2.5% Value Added Tax (VAT) applicable on all property transactions valued at $100,000 or less.

• 4% Value Added Tax (VAT) applicable on all property transactions valued at more than $100,000 but less than $300,000.

• 6% Value Added Tax (VAT) applicable on all property transactions valued at more than $300,000 but less than $500,000.

• 8% Value Added Tax (VAT) applicable on all property transactions valued at more than $500,000 but less than $700,000.

• 9% Value Added Tax (VAT) applicable on all property transactions valued at more than $700,000 but less than $1,000,000.

• 10% Value Added Tax (VAT) applicable on all property transactions valued at more than $1,000,000.

Legal fees on conveyance (@ 2.5% of property price)

VAT on conveyance legal conveyance legal work (10%)

Legal on mortgage (2.5% of loan amount)

VAT on mortgage legal work (10%)

Bank fees (@1.5% of loan amount)

VAT on loan (1%)

Misc. fees (insurance, excess attorney fees etc) @ 2% of purchase price)

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:

• Remember that not all lawyers charge the same for legal fees and disbursements, so these are only estimates, but that’s the general range. 

  
  

• As a first time homeowner, you should be 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 intend to live.

  
  

• Although VAT/Stamp Tax is usually split half-half between Buyer and Seller, keep in mind that this may not be the case in every sale, meaning that this cost may be higher than anticipated, but this should be disclosed before the Sales Agreement is signed.

  
  

• 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 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 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. Your monthly mortgage repayments will likely not be too far off from monthly rental prices.

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.