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Purchasing a home is a dream for many and is also considered a great marker of personal success. But when you consider the rising costs of real estate and limited wage growth in The Bahamas, the dream of homeownership can seem unattainable. Recent news reports have pointed to new data from the International Monetary Fund (IMF) which revealed that from 2012 to 2022, the price of real estate purchases and rentals increased by 14 percent, while wages grew by only 2 percent. This gap has made housing affordability increasingly difficult, but the dream of homeownership is still achievable.
Through consistent saving and smart investing, you can overcome the seemingly daunting challenges of today’s housing market. In this article, we’ll show you how to develop a clear action plan to secure the down payment and financing needed to buy a home.

Understanding the Costs of Buying a Home in The Bahamas
Before you start saving to buy a home, it’s important to understand and prepare for the upfront costs you’ll encounter. Beyond the initial downpayment to secure the property and take it off the market, you must also plan to cover the costs of legal fees, real estate commissions (which are sometimes negotiated as a part of the sale) and taxes.

Let’s use a $300,000 home as an example:

• Down Payment: Typically, you’ll need 5 percent to 10 percent of the home’s value as a down payment. For a $300,000 property, that’s between $15,000 and $30,000.
• Legal Fees: You’ll need to set aside 2.5 percent of the purchase price for legal fees. This is around $7,500 for a $300,000 home.
• Real Estate Commissions: While these fees are generally paid by the seller, it’s still important to factor them into your overall cost structure.
• Value Added Tax (VAT): VAT on property purchases can range from 2.5 percent to 10 percent depending on the value. However, if you are a first-time homebuyer, you enjoy a lower rate of zero percent for homes $300,000 or lower, and 4 percent for homes valued $300,001-$500,000. For a $300,000 home, expect to pay around 6% in VAT, which would be $12,000 if this isn’t your first time buying.

To prepare for these upfront costs, you need a clear savings and investment plan.

Consider the Cost of a Mortgage
The average Bahamian is not typically able to pay for a home in one fell swoop and most seek out financing through a lending institution. However, obtaining a mortgage involves several costs beyond the actual loan amount. Most banks require a loan downpayment of five to ten percent of the financed value. Additionally, most banks require some form of property insurance and in some cases life insurance to protect the investment.
While mortgage applications can be challenging to secure, especially with low approval rates in recent years, building up your savings and improving your financial profile can increase your chances of approval and reduce your reliance on borrowing.

A 10-Year Action Plan to Save for a Down Payment on a $300,000 Home
To give you a concrete plan, here’s a 10-year strategy for saving and investing to build the necessary funds for a down payment and other associated costs:
Year 1-2: Start Saving Immediately

• Set Up a Dedicated Savings Account: Open a separate savings account specifically for your home purchase. This helps you track your progress and avoid using the funds for other expenses.
• Start Small but Be Consistent: Aim to save at least ten percent of your monthly income toward your down payment. If you’re starting with a down payment goal of $15,000, this gives you a clear initial target. That’s just $250 a month for five years!

Year 3-4: Build Upon Your Savings and Start Investing

• Begin Investing: Once you’ve built a savings habit, start investing in low-risk options like mutual funds or bonds. This can help your money grow over time.
• Increase Your Savings Rate: As your income rises or your lifestyle changes, increase the percentage of your income dedicated to your home savings. Aim for 15% to 20% of your monthly income toward your goal.

Year 5-7: Accelerate Savings and Focus on Credit

• Maximize Your Savings: At this stage, you should aim to have around 40-50 percent of your down payment saved. Consider setting aside salary bonuses for the down payment as lump-sum contributions.
• Build or Improve Your Credit Score: A strong credit score is essential for securing a favorable mortgage. Focus on paying off small consumer loan debts, reducing credit card balances, and ensuring timely payments on all of them.

Year 8-9: Finalize Your Savings Goal

• Review Your Down Payment Target: By this stage, you should be close to achieving the 10 percent down payment goal (around $30,000 for a $300,000 home). Factor in legal fees, VAT, and other expenses to ensure you’re fully prepared for the closing costs.
• Save Additional Funds for Closing Costs: In addition to your down payment, start setting aside extra funds for legal fees, VAT, and other costs. Aim to save at least $40,000-$45,000 in total.

Year 10: Ready to Purchase

• Apply for a Mortgage: With your down payment and closing costs covered, it’s time to apply for a mortgage. Ensure your credit score is in a strong position to secure a favorable rate. Be sure to shop around to various lending institutions to get the best interest rate. It’s also important to note that no more than 28% of your income should go toward your mortgage. The lower this percentage the better as you will have more income to continue saving and investing.
• Stick to Your Budget: Once approved, stick to a home price that aligns with your savings and budget, taking into account monthly mortgage payments, property taxes, and maintenance costs.

Celebrate Reaching Your Goal
The key to success with anything worth having is consistency and patience. With the right planning, saving, and investing strategy and discipline, owning a home in The Bahamas is achievable. While it may seem like a long road, by breaking down your savings goals into manageable steps and investing wisely, you can build the wealth needed to achieve your homeownership dreams.

CFAL is here to help.

If you need additional help, feel free to reach out to us for a Financial Planning Session. Our Certified Financial Planners are here to assist you with your budgeting, saving, and investing needs.

T: (242) 502-7010 | E: info@cfal.com | W: www.cfal.com
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