Overview
There's no place like home.
Most people dream of owning their own home, but unless you're one of the lucky few, the high cost of homes means you'll need a mortgage to make the dream a reality.
As most readers know, a mortgage is a loan, generally from a bank or deposit and lending company, to pay for a home. The home is then pledged as collateral, which means that if you don't make your payments, the lender can repossess the property and sell it to recover their funds.
MORTGAGE PRODUCTS
Generally speaking, there are two basic types of home loans: fixed and adjustable. Understanding the benefits of each and the differences between them will help you choose the one that works best for you. (See our section on Mortgage Products for more details.)
YOUR APPLICATION
Your loan application provides information the lender needs to decide if they can lend you the money to buy a home. So it's important to provide all the information and documentation requested. You can download mortgage application forms for HSBC, Butterfield Bank, Capital G and First Bermuda from this website. Once completed, you should submit them to the appropriate institution.
PRE-APPROVAL
Many future homeowners choose to apply for a loan in principle before they find a home - they get pre-approved. Here are two reasons to consider getting pre-approved:
- It confirms what you can afford to spend on a home.
- It demonstrates to the seller that you are likely to qualify for funding and are a serious buyer.
SUPPORTING DOCUMENTS
Some lending institutions require less documentation than others, but they all require some. Here are the most common requirements:
- Income verification for each applicant, which may include:
- Recent paycheck stubs
- Supporting documents showing any additional income you will use to pay the loan, such as alimony or child support
- Asset verification:
- Bank statements for the last two months
- Investment statements for the last two months
- Debt verification:
- Account statements for all open credit lines
LOAN APPROVAL
When a lender extends a loan to a customer, they're essentially making an investment in that customer. So it's important for a lender to evaluate each applicant's ability to repay their loan based on the applicant's past performance and current situation. Lenders make that evaluation based on your application and the supporting documentation you provide. Here are some of the things they consider:
- Monthly income - how much you earn
- Monthly obligations - how much you owe
- Employment history - to gauge your future earnings
- Down payment - the larger the down payment, the more you are invested in the home. This gives the lender confidence that you're committed to paying the loan and are less likely to walk away. That said, most lenders in Bermuda offer loan options that require little or no down payment. Ask your loan institution for more information.
- Source of down payment - lenders usually prefer savings as a source of down payment. Savings show that you spend less than you make and that you can afford loan payments. But savings aren't your only option. You can use many sources—savings, a gift from family, borrowed funds or a cash reserve.
- Property Value - the lender will ascertain the loan to value ratio of the home from his appraiser. Please note that this appraisal is for the lender's purposes. You should make your own assessment about the value of the home.
LOAN PROCESSING
After your loan is approved, there are a few items you'll need to take care of before it's all final:
- Homeowner's insurance - Generally, before you can close the sale of a property, you need to provide proof that it's insured at an appropriate level.
- Loan closing - After your loan is approved and processed, you'll sign your final loan papers at a “closing”.
- Documents are recorded and funds dispersed.
