7 Tips for first-time property buyers in Namibia
For you, as a person being new to the property market, all the banking jargon seems to be getting in the way of actually being able to buy a house. Right?
For you, as a person being new to the property market, all the banking jargon seems to be getting in the way of actually being able to buy a house. Right? So we decided to make this process less scary and confusing by giving you a quick breakdown of the rules and regulations applying to you, as a first-time buyer, when trying to buy property in Namibia.
Tip #1: First find out how much deposit do you need
Good news for first-time buyers is that the Bank of Namibia has brought relieve to Namibians by waiving deposits for all buyers purchasing their very first property. This new regulation has been freshly implemented on the 01st of March 2017. This means that the commercial banks will extend a home loan to the prospective first-time buyer, and they will not be expected to pay a deposit. Good news indeed.
The commercial bank providing the loan to the buyer will finance the remaining percentage of the home loan. This is known as a loan-to value ratio, or LTV. The LTV when buying a second home, a 20% deposit will be required, 30% deposit for a third home, 40% deposit for a fourth home and 50% deposit for a fifth home.
Just keep in mind that this new regulation might take longer with mortgage approval as banks will first need to investigate and verify that the first-time buyer applicant does not have any property in his / her name. Therefor prepare yourself to be patient and not buy in a rush. A good strategy is to get pre-approval on a mortgage before looking for a property. That way, if you find a good deal which needs an immediate answer you can act quicker and reduce the risk of losing the property to other prospective buyers.
Tip #2: Make sure that you can pay the monthly premium
Simply taking your income into account is not an accurate assessment of your affordability, as there are expenses that must be maintained along with your bond repayments. Before starting to look for a home, potential homeowners should get an indication of the loan size they qualify for. Your bank will be able to assist you with a pre-qualification. Some advice…prepare yourself, sometimes the amount may be lower than you anticipated. Remember that the bank needs to ensure you can comfortably afford a home loan, and is helping to protect you from getting into financial difficulty in the future. As a first-time buyer, one’s practical thinking can sometimes be clouded by excitement of buying your first property. Step back, take a deep breath and always keep the future in mind. Ensure that you are prepared for it.
You can also use a home loan calculator to get an idea of what you will qualify for before you go and see your bank for a pre-qualification. This will reduce the risk of unrealistic expectations and allow you to be prepared for the meeting. Here are the links to the loan calculators of Namibia’s major banks (in alphabetical order).
Tip #3. Make provisions for “other costs” involved with buying property
Apart from your monthly mortgage payments, there are other costs when buying a home. These include:
Mortgage arrangement and valuation fees
Stamp Duty: this is a tax that is levied on documents. This includes most legal documents such rental contracts, business contracts, financial statements, marriage licences and land transactions.
- Solicitor / lawyer fees
- Survey cost
- Removal costs
- Any renovations, restorations or repairs
- Initial furnishing and decorating costs
- Insurance
- Municipal rates & taxes
- Monthly levies if you buy a property which is part of a complex or development, for example townhouses or flats
Tip #4: Make use of a home buyer scheme if you can
A housing scheme available in Namibia for Namibians is the National Housing Enterprise also better known as the NHE. As per the NHE website they are a state-owned company of the operating under the Ministry of Regional and Local Government, Housing and Rural Development (MRLGHD). Their mission is to provide and finance affordable housing to low and medium income households as well as facilitating the partnering of stakeholders.
Just make sure that you have a lot of time and patience before you apply for the scheme as there is a very long waitlist in all the major towns where these low cost houses are offered.
For more information visit their website http://www.nhe.com.na
Tip #5: Find a mortgage that best suits your needs
There are different types of mortgages in Namibia such as:
Conventional Mortgage: This is a single-term loan offered over a minimum of 1 year to a maximum of 30 years, with interest rate linked to prime interest rate using the property as security.
Under Owner Carry Mortgage: This is where a seller carries back the mortgage with a first or secondary loan on the assets when a buyer fails to meet the criteria for a loan, closing costs and when the seller has a preference for monthly cash flows.
Assumable Mortgage: This is created by the statement of a seller’s existing mortgage by a buyer in the absence of a “due on sale” section in the mortgage. Nevertheless, the seller maintains to be liable under the mortgage except released by the lender and he may charge a payment on the buyer who take for granted the mortgage.
Reverse Mortgage: This permits older home holders (62+) to exchange the equity in their homes to a payment option. Instead monthly payments to a lender, the lender makes payments to the home owner.
Deferred Interest Mortgage: This is when interest payments are deferred for a period of time and amortized with the rest of the loan.
Do your homework on each type of loan and make sure that the one you chose tick all your boxes. Remember, you will be responsible for this mortgage on a long term, and therefore has to fit your needs comfortably.
Tip #6: Familiarize yourself with the mortgage application process
To obtain a home loan in Namibia several factors are taken into consideration by the bank or other lending intuitions such as your:
- Credit record
- Salary income
- The property value evaluation
- Loan repayment duration
- Even though a deposit is no longer required from first-time buyers, having some sort of deposit available will increase your chance on a better loan.
Documentation requirements may differ from loan providers, but in general make sure you have the following documents on hand:
- Proof of income
- Namibian ID
- Copy of offer to purchase
- Proof of current residential address (for example: municipal account, Telecom account or valid TV licence).
- Proof of salary earnings: most recent salary slip or banking statement for the last 3 months, a letter from your employer which will be followed by a telephone confirmation to your employer.
- 12 Month bank statements
Once your loan provider of choice has received all the relevant documentation, the approval process will begin. The loan provider will need to do a valuation of the property that you want to purchase to ensure that it is of value and that they are willing to finance it. The home loan approval process can only be efficient if all the correct documents are provided. Your estate agent will assist you in completing an Offer to Purchase. This makes the offer formal. It includes an offer price, closing date and financing information.
Tip #7: How to buy property without a mortgage
Did not qualify for that mortgage? Don’t worry as there are other options to purchase a house without a mortgage.
Lease with the “Option of Buying”: This strategy is also referred to as “rent to own” or “lease-purchase.” This means you would make payments just like with an ordinary lease and payments go toward buying investment properties. The agreement includes a time frame in which the tenant has to buy the property for a specific price. During the time period, the owner or investor cannot sell the property to anyone else. If going with this strategy, make sure to agree on a final price in a legal document.
When you do make use of this option, make sure that you read the fine print. Often interest rates for this are higher than mortgages, and you lose a lot more if for some reason, you are unable to make a payment. These are really for people who don’t have good credit record.
Trading: Trading possessions is one way for buying investment properties with money. This could be another property or another asset such as a car. You could also try purchasing a property in exchange for work. For example, a contractor can offer labour to a real estate developer in exchange for a down payment. For investments, it makes more sense to exchange an asset other than a property to obtain a new investment property. Be sure to write up a legal document including the value of both assets.
The bottom line
When looking for your first property, remember to keep your expectations realistic. Keep in mind that property is an investment, which will consume a large percentage of your paycheck for several years to come. That is why it is important to do your homework, be patient and work with an experienced agent. The main aim of the game would be to avoid any mistakes on a life long investment.
Enjoy the journey!