Investing in Cayman: mortgages

 For all but a select few, buying a home means getting a mortgage. Navigating all the options and requirements that form part and parcel of applying for a mortgage can be confusing, especially for first time home buyers.
   Add the fact that all of this has to be accomplished in the midst of finding a property and haggling about the price, and the process becomes ever more intimidating.
   
Plan ahead
   According to most banks and estate agents, it makes sense to speak to your bank before shopping around for a property. Having a relatively accurate idea of whether you would qualify for a loan and how much you would qualify for will make the property hunt that much simpler. It also avoids a situation where you find the home of your dreams, only to have those dreams scuppered when you do not qualify for a sufficient home loan.
   
Important factors
   There are two main factors that influence whether a bank will grant a mortgage. There two are the person applying for the mortgage, and the property for which the mortgage is requested.
   Should either prove an unsafe investment, the bank will not make its money available through a mortgage. This could mean that even when the bank does not consider an applicant a risk, the property itself may not be worth the agreed price, and the bank would therefore not be prepared to offer a large mortgage.
   As already mentioned in the previous article in the series, banks require a valuation of the property to be done as part of the loan application process. This ensures that the property the bank is investing its money in is worth the price the loan applicant is willing to pay for it.
   When deciding on whether a borrower is eligible to receive the loan amount requested, banks will look at the debt to service ratio of the borrower. This refers to the percentage of a borrower’s income that is taken up by other loan obligations, such as credit card debt, car loans or other mortgages.
   
Stamp duty
   There are also a number of other costs that should be kept in mind when looking at buying a home.
   Stamp duty is the biggest of the costs, other than the purchase price, related to buying property in Cayman.
   The stamp duty is calculated on the value of the property being purchased, excluding any furniture that may be sold with the property.
   The percentage of the value of the property paid as stamp duty depends on a number of factors.
   The location of the property plays an important role. Although the current stamp duty reductions mean that all properties on Grand Cayman have a stamp duty of five per cent, this reduction will come to an end on 30 September unless it is renewed.
   Before the reduction, properties along the Seven Mile Beach corridor attracted a stamp duty of 7.5 per cent, with properties elsewhere attracting stamp duty of six per cent.
   
Caymanian buyers
   There are special measures in place for Caymanian buyers as well, with properties outside of the Seven Mile Beach corridor attracting a stamp duty of four per cent and first time Caymanian buyers paying two per cent for properties between CI$200,000 and CI$3000,000 where these properties will be owner occupied. Both these percentages have been reduced by one per cent until the end of September.
   For first time Caymanian buyers, there is a stamp duty exemption in place on land with a market value of under CI$50,000 or properties where the market value of the land and buildings is under CI$200,000.
   
Other expenses
   It is also important to keep in mind that the bank will require loan applicants to get life insurance which will cover the full value of the loan should the applicant pass away. The most common way of fulfilling this condition is taking out a term life policy for a time period similar to the period of the loan.
   Most property deals will require a minimum of ten per cent down to secure the deal, and this will usually be required to be paid within days of signing the purchase agreement. Depending on the bank, an even bigger deposit may be required for a home loan to be granted.
   There is also a one per cent stamp duty on the mortgage amount if the amount is under CI$300,000 or 1.5 per cent for loans over CI$300,000.
   Legal fees can also add up to roughly one per cent of the purchase price.
   A qualified estate agent should be able to provide potential property buyers with all the information on costs associated with purchasing a property. However, doing a little research before entering the market can avoid some nasty and expensive surprises along the way.  
   
Factors that could influence your chances of getting a mortgage:
   
   -Current income
   -Years with current employer
   -Age
   -Ability to pay a deposit and closing costs
   -Credit history
   -Other debt obligations

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