Check out these tools to see if buying a home in Bermuda makes financial sense
The quest to own one’s own space, a home, is one of the most enduring and common goals that we possess.The process to achieve that home ownership has never been easy.Last week’s real estate overview article generated more than thirty responses- the largest number thatI’ve ever received in one week. Comments ranging from negative opinions on the Bermuda housing industry to the inability of the author to articulate the current real estate situation, demonstrated rather clearly that the personal anxiety of the readers regarding the state of our economy is high and growing.Constructive criticism is a good thing.It generates thought-provoking ideas, community dialogue and is a healthy cornerstone of a free democratic society.You have to live somewhere. You and your family should not base your personal decision on owning a property (or not) on the comments of the opinionated in an article, or rely on friends and relatives for complete advice.And no, I am not a paid or unpaid representative of the real estate and construction industry. See disclosure below.Life changes, people are always on the move, from one genSome families are initiating a life changing event by leaving Bermuda, choosing to seek new opportunities to domicile elsewhere (the subject of a future article).If your family, your culture, and your roots are here, then this is your home domicile for generations to come.If you intend to keep your home for your children, invest in your community, then your entire personal perspective affects the property ownership end game result.Whether the economy is up or down is not precisely the point.A declining economy does have major impact on the ultimate value of a home purchase, but it is not the only criteria used to make that decision.How do you know when you will derive the greatest real estate value for your hard earned savings?Should you even consider shopping for real estate now?There are reluctant house shoppers who feel prices need to fall much further before they will commit to any home purchase. Yet, anecdotally, real estate is still steadily selling in Bermuda (and buyers are buying), albeit not at the fevered frenzy of past.If you are unsure as to when to purchase, or whether you will receive adequate price value in the home you want, consider comparing the cost to you of additional rent expense for the next five fifteen years versus the cost of home ownership.It is always a revelation when I review this calculator with clients and they see the accumulated rent total.This Rent all paid to build the property owner’s net worth.The rent versus buy financial toolOften, a property you have seen may not be exactly what you had in mind (your dream house), but if it is in your price range, it is worth serious consideration.A house becomes yours, eventually a debt-free asset, but you can never recoup the money paid in rent to another homeowner. If you doubt that statement, run your numbers through the rent versus buy calculator! http://tcalc.timevalue.com/all-financial-calculators/mortgage-calculators/rent-or-buy-calculator.aspxUsing this calculator, projecting a rent expense of $3,000 per month against property value of $450,000, down payment of 20%, mortgage interest rate of 6.75%, and various home closing fees, taxes and insurance, over a fifteen year time frame, home ownership will save you an estimated $375,000.This number does not include any appreciation in home value over that same time frame.Try out this calculator. It will provide fresh impetus in real dollar terms to renew a home ownership goal.Don’t forget to zero out the US tax effect it doesn’t apply.In the end, what so often happens is that the final decision to buy a home is emotion driven because you have seen a property that cannot be duplicated and is perfect for your family’s needs.The decision is almost never the analytical financial valuation process that everyone assumes is made.How secure is your job?Now, the Next hurdle getting your financing in place. Unless you are financially self sufficient, you will still have to qualify for a mortgage.Location, Location, Location is no longer the first qualifying factor in the home purchase equation.It probably never was for a bank mortgage officer. Location has slipped down the list as a third factor after job security and financing ability.The viability of your current and future job prospects in this economy are, in my opinion, the number one decision factor that will enable you to qualify for a mortgage and keep your new home.Pre-approval to be a Buyer. The lending institution will run their numbers based upon your credit quality, ability to repay, and your personal financial position (including a 15%-25% down payment), to provide the topmost housing price you qualify for.You must run your own numbers using more severe what-if contingency planning, and they must have affirmative answers.If you are in the position, financially, to make this home purchase, can you handle the cost if interest rates and your monthly payment increases? Work through this mortgage calculator to see effect. http://www.mortgagecalculator.org/Can you handle the payments if one of you is placed on part-time working hours? What if both of you are part-time?Can you cover the payments if one of you is made redundant?If the property comes with a rental unit, can you make the monthly payments without any rental income?For more on Bermuda condominium ownership, http://www.marthamyron.com/BermudaCondominiumOwnershipAnalysis.htmDisclosure: the columnist does not represent or have any connections to the real estate or construction industry.Martha Myron, JP CPA CFP(US) TEP is a Bermudian and an international Certified Financial Planner™ practitioner in private wealth management.She specialises in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with United States and multinational connections, and US citizens.