Real estate investment continues to be one of the most popular vehicles for producing financial wealth. If you do not have cash, you need to finance the purchase, and there are several options available, such as bank financing, family financing or gift, sale or equity takeout of assets, to name a few. The most popular method is bank financing.
Most of the local banks here in the Cayman Islands will provide a pre-approval to qualified purchasers. Some banks will only amortise the mortgage up to the age of 65 unless it is an investment property. Amortisation is the number of years required to pay the mortgage in full. The longer the amortisation, the lower the monthly payment. You will also need to decide if you want a fixed or variable rate mortgage tied to the US Prime lending rate. If you are from overseas, you should check with your home bank to see if refinancing an existing property is more favourable.
For bank financing, the following information is required:
- Employment letter;
- Verification of down payment and closing costs (bank statements);
- If you are self-employed, you will need to provide financial statements and bank statements for the past three years confirming income;
- Credit report;
- Verification of assets and liabilities;
- Know-Your-Customer information, such as passport, driving licence, or utility bill.
Down payment requirements
Most banks require 15% down for residential homes, but some banks will allow 10% down depending on the purchaser’s circumstances, such as job stability, income, position, etc.
For raw land, the minimum is 50% down with 15-year amortisation; for rental properties, the minimum is 35% with a 20-year amortisation; and for commercial properties, it is a minimum of 35% down, depending on the property.
For closing costs, budget 10-11% of the purchase price.
Stamp duty on the purchase will be 7.5%, while stamp duty on the mortgage will be 1% <=CI$300,000 or US$357,143; when it is in excess of this amount it is 1.5%.
The bank application fee can be up to 1%, and for legal Fees, budget 0.05 – 1%.
An appraisal or valuation will cost around $1,500 but could be more, depending on the property type, size, location, and complexity.
For property insurance or strata adjustment for insurance, budget 1%.
Three things to consider when purchasing are:
- Price, and
- Size of the property
Think about a triangle, with each of these considerations at the tips of the triangle, and the property should fall within the triangle. If it doesn’t, the triangle will need to move, or one or two items on the axis will need to be adjusted. Your Cayman Islands Sotheby’s International Realty agent will work with you to help with the process and find the property that works for you. To be successful, you need to have a plan, and we can help with that.