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Answers to some common financial questions from first time buyers

How do I apply for a mortgage and what documents do I need?

To apply for a mortgage, you need to complete and submit an application form to your lender. You'll have to provide:

  • Valid ID for each person applying (passport, Bermuda driver's license)
  • Proof of current address (BELCO bill, cable bill)
  • Proof of income earnings for each applicant and proof of employment letter
  • If self-employed/business owner – Past 12 months of Payroll Tax Returns or 2 year financial statements
  • Copy of rental agreement and statements if rental income is not direct deposited to HSBC
  • Latest pay stubs, normally the previous three months
  • Details of the property you are buying
  • Real estate agent's and lawyer's details

How can I give myself the best chance of getting a mortgage?

You can give yourself the best chance by firstly, making sure that you have a good credit rating. This ensures that you do not have any issues, such as defaults on credit card or bills. Make sure you investigate your history through the Bermuda Credit Association (BCA) and get any errors rectified before you approach mortgage lenders.

Building up your deposit may involve drawing up a new budget for yourself (and your partner if you have one). You may need to cut back on unnecessary expense so that you can put away as much as you can each month.

How much can I borrow?

The amount you can borrow generally depends on the amount of income you have. Lenders also factor in any other payments you make to commitments such as loans, credit cards or school fees. Click hereto see how much you might be able to borrow from HSBC.

Your home may be repossessed if you do not keep up repayments of your mortgage.

How large a deposit will I need?

Most lenders will look for a minimum deposit of 20% of the property purchase.

Loan to value represents the value of the property which you are looking to borrow. For example, a $100,000 property with an $80,000 mortgage = an 80% LTV

How long does the whole process take?

If everything goes smoothly, it usually takes around four to six weeks from start to finish. However, every house purchase is different, so this can vary. The time it takes you to find a home can vary hugely, depending on how intensively you search and how quickly you decide on a property. Once you've made an offer, it can take around a week to conclude negotiations. It's a good idea to obtain pre-approval in advance, as this will speed up your mortgage application when you've found a property you want to buy.

Appointing a good lawyer can take a while so you might want to start your search at the same time as your property hunt. Be sure to ask your Personal Banker, Wealth Specialist or Premier Relationship Manager for the Bank's current list of permitted law firms. Once you've submitted your full mortgage application, it can take around a week for an appraiser to carry out an appraisal on the property and the results.

Once you've reached the final stages of purchase, the time it takes to draw up and exchange contracts can vary enormously, depending on how smoothly things run. A reasonable target from submitting a full mortgage application to completing the purchase is around four to six weeks. The process is likely to be quicker if you are a cash buyer. But do bear in mind that each property purchase is different, so timescales can vary.

What is the difference between freehold and leasehold?

If you buy a freehold property, it means you own the building and the land it is situated on, and you will have the right to live there for as long as you like.

If you buy a leasehold property – common if you are buying a condominium – you are actually buying the rights to live in a property for a set period of time, but you won't actually own the property, or the grounds it is built on. Alterations are limited in accordance with the head lease as well as other restrictions imposed by the landlord/owners committee. It's important to find out how long is left on the lease, as this will affect the value of the property. You may have to pay ground rent or maintenance fees if you buy a leasehold property, so remember to factor this into your home buying budget.

Who are the key people involved in the home buying process and what are their roles?

Real estate agents market properties to potential buyers and negotiate with them on behalf of their clients. Their role also involves valuing properties and comparing them to others on the market.

Mortgage lenders provide the financing to buy a home. You can get a mortgage – a home equity loan – direct from banks.
Lawyers are qualified to practice in any area of law but some may choose to become property specialists. They will check the contract and any legal documents associated with transferring a property from one owner to another.

Appraisers provide valuations and surveys of properties. There are different types of appraisers– from those who provide basic valuations on behalf of mortgage lenders, to those who carry out full structural appraisals to highlight any defects in a property.

What are the implications if my mortgage application is rejected?

Having a mortgage application rejected is not the end of the world, but it can be useful to understand why you've been turned down. Scheduling a follow up meeting with the lender that processed your mortgage application can provide insight on the reason for your rejection and put plans in place to improve your financial situation and/or provide alternative options.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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