Young people new to the workforce become excited when they finally have their own money in hand. They may want to buy a car, get a credit card, go on vacation, move out of their parents’ home and more.
However, Marsha Rae Leben, TT Mortgage Finance Co Ltd (TTMF) corporate communications manager, says it is important to evaluate how money is spent, especially if owning a house is one of your goals.
She offered information and advice on how someone in their early 20s can buy their own home by the age of 30. She noted that there are several home ownership options, including buying land and building, buying and fixing up an existing property, building an addition onto the family home or buying a new house.
“Just remember that your first home does not have to be your last home. You’re not necessarily buying your dream home. You’re making an investment. If you can, wait, but if you can’t, you can start small...
"The benefits of home ownership are many – the pride of home ownership, the security, the stability, and when you pay little or nothing down it’s a high-value investment.”
She said property prices will continue to rise, so it is better to start planning sooner rather than later. If possible, she advised buying land and building later when there is a change in your financial situation.
She also recognised that many people have no choice but to rent. Those she urged to remember their long-term goals and live within their means, and suggested avoiding the most expensive places, and looking for a roommate to share costs.
When searching for property, she said, tell everyone you know as well as real estate agents that you are searching for a home, so they can alert you if something is available. You also must put in the work and search newspapers, social media, and anywhere you can think of.
“Also important is to look outside your comfort zone. Not because you’re born and bred in Diego Martin you have to stay there. The west and the East-West Corridor tends to be the most densely populated areas, and as such the property prices are higher. You may need to go a little further east, a little further south, where you can get more bang for your buck.”
WHAT TTMF LOOKS FOR
Leben said when considering giving customers mortgages, TTMF takes age, income, debt, and credit history into consideration. She said the maximum terms are 30 years, so the younger the client the better, because the longer the term, the smaller the instalment.
Permanent and contract employees, and self-employed people are considered for loans. Those who are self-employed, she said, must prove their income. This can be done either through audited financial statements or bank statements over three years. Therefore, it is important that small business, as well as those with side businesses, have a separate business account.
“Make sure and deposit all your money. If someone pays you with cash, don’t go to the grocery and shop with it. Pass it through the bank. If it does not go through there, we will not know of it.”
Debts include loans, hire purchases, and credit cards. She pointed out that five per cent of a person’s credit-card limit is considered a loan, since it is money available to them. She suggests not having a credit card with a limit higher than the income.
Even if a person never had a loan, their bills are considered part of their history. These include post-paid phone bills and cable and internet bills. The TTMF checks to see they are being paid on time.
“You need to be careful with anything that is in your name. You may be young and now starting to work and some granny, tanty, neighbour wants to get cable and they can’t get it on their own so they come to you so it’s in your name.
"You need to be careful that they are paying the bill because it’s your credit that is being monitored. We’re not saying don’t do it – we’re just saying to be careful.”
People who make $14,000 or less per month could receive up to a $1 million loan at a two per cent interest rate. Those with incomes over $14,000 qualify for up to $931,408 at a five per cent interest rate. In addition, TTMF has two cent and five cent mortgage programmes where government subsidises the interest rate on the purchase of any property.
However, the TTMF also takes into consideration a person’s GDSR (gross debt servicing ratio) and TDSR (total debt servicing ratio) to increase the possibility of individuals living comfortably.
TTMF’s GDSR says mortgage payments should be one third of a person’s income, while TDSR says mortgage payments and other debts and commitments should not be more than 40 per cent of income.
“If you come to me for a loan, I would look at your existing debt and that would help me determine what I could give you for a loan. If your existing debts are 25 per cent – because remember, I’m looking for 40 per cent – then your mortgage instalment can only be 15 per cent of your income. The instalment will then determine the value of the loan you will get,” Leben explained.
BUDGET FOR YOUR GOAL
She suggests that people immediately start saving for mortgage upfront fees. These fees – which include a down payment (if applicable), a title search fee, transfer tax, closing costs and other fees – total approximately five per cent of the loan. For someone with a $10,000 income, she recommended putting between $500 and $1,000 per month for at least four years towards those fees.
She gave Business Day several simple, helpful pointers to making that happen.
• Credit cards – when making a purchase, ensure you can pay it off by the end of the month or within three months.
• Insurance – Get some independent advice, evaluate your circumstances and decide what you need rather than everything an insurance agent may encourage.
• Vacation – Travel off season, stay by a friend when you can, eat local instead of at fancy restaurants, and look for bed and breakfasts rather than five-star hotels. Staycations are also an option. Visit Tobago, go on hikes, visit local sites, take a nature tour.
• Vehicles – Public transport is cheaper, but if you insist on a vehicle, a new car is not necessary. However, do not buy just anything. Ensure the vehicle is reliable.
• Hire purchase – Avoid it unless there is a three-month cash price deal. Interest rates can be as much as 85 per cent.
• Place emphasis on needs versus wants – Do you need a newer, more expensive cell phone, or is your older phone still working well?
• Manage your entertainment money – You do not have to attend every party. Beers are cheaper than hard liquor or wine. Go to cinema on nights with reduced ticket prices or wait to watch them on DVD or on the internet.
• Groceries – Cook at home and pack breakfast and lunch. Plan your meals so you know exactly what you need to buy at the grocery and shop with a grocery list.
• Home – Start planning for it.
“Remember you have a long-term goal. If you could stay in your parents’ home, stay home...You cannot say you want to go splurging and then say you want the house. You have to make the sacrifice early...Don’t study what anyone else has or what they will say. It’s ok.”
In addition, Leben said if there is proof that a person can service a loan up to age 70 – if they are employed, employable, or self-employed – it is still possible to get a mortgage up to the age of 40.