Understanding the Home Buying Process in Bermuda

For the majority of people (both Bermudian and non-Bermudians), purchasing a home in Bermuda is one of the most significant financial decisions they will make in their lives. Over the last few years, numerous changes have occurred in the Bermuda real estate industry, including growing home prices, changes in government regulation, and more stringent lending processes.

If you do not handle your house purchase appropriately, the dream of owning a house in Bermuda can rapidly turn into a nightmare. With so much at stake, it is critical to work with trusted and trained professionals, such as realtors, mortgage lenders, mortgage brokers, and legal counsel who are familiar with Bermuda customs and real estate laws, to assist you in navigating the process and avoiding many of the pitfalls that could affect your transaction.

This article is intended to provide an overview of the steps involved in a typical home buying process in Bermuda.

Get Pre-Approved

Obtaining pre-approval from at least one lending institution is a critical step to take even before you begin looking for a home to purchase in Bermuda. To begin, the pre-approval process establishes your borrowing capacity and so helps you narrow your search for affordable residences.

Additionally, many sellers in Bermuda will not consider an offer in today's market unless the prospective purchaser obtains pre-approval from a mortgage provider. While it is common for most non-Bermudian home buyers to pay in cash, getting mortgage financing is one of the surefire ways to fund the purchase a new Bermuda home. More importantly, your preapproval status is usually valid for a period of six months.

Choose a Real Estate Agent

As a Non-Bermudian or Bermuda local looking to purchase a slice of Bermuda real estate, it is important that you work with a real estate agent. Working with a local Bermuda real estate agent gives you a level of guidance throughout the home buying process. Since local realtors understand the area, price changes, and important real estate regulations, you are assured of a smooth home buying journey.

You can privately hire a realtor to act as a buyer's agent. However, ensure that your agent is looking out for your best interests when showing you homes or negotiating a purchase on your behalf. More importantly, the Real Estate Division of the Bermuda Chamber of Commerce recommends 5% real estate agents´ commission which may be covered by the seller.

Find the Right Property

Bermuda is divided into nine parishes, and you'll need to determine which one you'd like to live in. The cost of living in Bermuda can be high, especially in Hamilton, the country's commercial center, so keep this in mind while making your decision.

Numerous factors can impact your decision, including the area's popularity with tourists. If you're seeking for a peaceful parish close to Hamilton, Pembroke, Paget, Devonshire, or Smiths may be for you. While there is no wrong decision, each parish provides something unique to residents. Your hired local real estate agent will help you make the right choice during this stage.

Choose an Attorney

When purchasing a home or condominium in Bermuda, you must retain the services of a lawyer to represent you in the transaction. Choosing the appropriate lawyer is a critical decision. Purchasing a home, even more so as a non-Bermudian, is a significant legal transaction and is almost certainly the most expensive purchase you will ever make. By retaining the services of an expert real estate attorney, you can be assured of receiving excellent guidance and preventing future issues that could have severe ramifications.

For example, if the purchase requires a mortgage, your lawyer should evaluate the mortgage documents to ensure they are correctly drafted.

Additionally, your lawyer will do a title search to establish that the seller owns the property in all legal and equitable ownership rights. Additionally, the title search identifies individuals who have claims (such as taxes, mortgages, or judgements) against the property's current or prior owners. To obtain clear title to the property, these claims must be resolved.

Get a License

While you can own property in Bermuda as a non-Bermudian, but you must apply for a license from the Ministry of Labor, Home Affairs, and Public Safety. Your chosen attorney will help you with the process of obtaining a license to purchase a specific property. The license application fee is currently $1,706 (refundable upon license approval).

More importantly, it may take anywhere from four to six months to get the license, and the required license fee is 8% of the purchase price of a house and 6% for a condominium, so prepare accordingly. You may also be required to provide a banker’s reference and two personal references (usually Bermuda citizens). If you’re buying a house as a local, you do not need to apply for a license or pay the application fee.

Make an Offer

When you've located a house that you're interested in, you should initiate negotiations by submitting an offer. While your initial offer may be approved, you should be prepared to negotiate before agreeing on a final price. It is extremely usual for offers and counter-offers to contain varying allocations of closing fees in order to fine-tune the final agreement.

Sign the Sale and Purchase Agreement

After the seller accepts your offer, the Sale and Purchase Agreement (SPA) is prepared. The SPA in Bermuda is designed after a regular Bermuda Bar Association agreement. It is created by the seller’s attorney and forwarded for discussion and approval to the buyer's attorney.

The SPA is the legal document that establishes the parties' rights and duties and the parameters of the transaction. When both parties sign the SPA, it becomes a legally enforceable contract for the acquisition of the property, subject to the contract's terms and conditions.

The SPA contains information about all the parties involved in the transaction, describes the property being conveyed, outlines the general and particular circumstances of the transaction, and also specifies the transaction's closing date. You should request that your hired attorney carefully review the details within the SPA and confirm that all the required clauses are reflected.

Make a Deposit

Once the provisions of the SPA have been agreed upon, including any specific circumstances, the contract is ready for signature. The buyer attorney often signs first, followed by the seller’s attorney, and finally the agent for stamping and dating. As a buyer, you are expected to pay a deposit at this stage, which is typically 10% of the buying price.

The deposit is held in a separate account by the "stakeholder" (either the real estate agent or the vendor's lawyer) until the transaction is completed or cancelled. The property is basically taken off the market once the deposit is paid.

Secure Mortgage Financing

The majority of purchasers require a mortgage in order to acquire a property. Prior to signing the SPA, you will have spoken with your mortgage lender, and your attorney will deliver a copy to your loan officer. The loan officer will arrange for an appraisal of the property to ensure that it meets the lender's collateral requirements. They will also write your "Offer to Finance" letter, which will describe the terms of your mortgage. The loan officer will communicate with your attorney, who will prepare the closing documents for your inspection and signature.

Pay the Closing Costs

Consider the closing fees associated with a property acquisition in Bermuda while making a decision. Among the most onerous is stamp duty, which is often divided between buyer and seller and is calculated as a percentage of the transaction's value. Your local Bermuda real estate attorney will help you with a detailed list and explanation of all the necessary fees you may need to pay whether as a local Bermudian or non-Bermudian home buyer.

Close on the Sale

The SPA will establish a date for the property's conveyance. This date is frequently established in Bermuda as the thirty (30th) day after the contract is fully executed, though the closing may take longer. The thirty-day moratorium permits the Department of Planning to conduct an inspection of the site for unauthorized development.

Although it may be tempting to skip this step, we strongly advise against it. If you take ownership of a property before the Department of Planning completes its inspection, you will be held accountable for any illegal development that occurred in the past.

Bermuda Real Estate Regulations for Non-Bermudian Home Buyers

Bermuda local regulations regarding buying a home as a non-Bermudian include:

• For a property to be eligible for acquisition by an overseas buyer, the property's Annual Rental Value (ARV) must be greater than a certain sum ($25,800 for a condo and $126,000 for a home). However, as a Bermuda citizen, the ARV threshold is zero.
• Once an overseas buyer has found their dream house and signed a Sale and Purchase Agreement, they must submit their purchase application along with a consideration fee. This will be facilitated by a local attorney.
• A deposit of 10% of the property's purchase price will be paid once a Sale and Purchase Agreement has been executed.
• Non-Bermudians must obtain a Residency Certificate in order to purchase a condominium, which they cannot do if they hold a work visa. This certificate is not valid for residential property.
• Non-Bermudians may own a maximum of two properties. Bermudian locals on the other hand, may be able to own as many properties as they can purchase.
• Non-Bermudians are not permitted to acquire vacant land, with the exception of specialized tourism ventures.
• On application, a non-Bermudian may purchase a residence with several assessment numbers. The ARV of a single assessment number, on the other hand, must exceed the $126,000 minimum.

Consult your real estate agent and attorney for other important home buying laws that may apply if you’re buying a home in Bermuda as a foreigner or local.

Costs Associated with Buying a Home in Bermuda

1. Deposit: At the time of contract execution, a 10% down payment of the purchase price is required. Until the deal is finalized, the Agent or Attorney holds the deposit in escrow. Any accumulated interest benefits the Purchaser. The remaining balance of the purchase price is required upon transaction completion.
2. Stamp Duty: Bermuda's government imposes a stamp duty based on the purchase price:

• The first $100,000 is subject to a 2% tax;
• The next $400,000 is subject to a 3% tax.
• The following $500,000 is 4%.
• The following $500,000 ($1,000,000 but no more than $1,500,000) is 6%.
• Subsequently (for amounts more than $1,500,000): 7%

3. Conveyance Fee: Determined by your legal counsel using a scale of minimum fees specified by the Bermuda Bar Association.
4. Mortgage Fees: Your preferred lender can present you with a current mortgage cost schedule.
5. Additional costs: This may include an appraisal fee (from $450 upwards), pro-rated land taxes at closing, a structural survey fee (if the home you are purchasing is a fixer-upper that requires repair/renovation) – the cost of the survey is determined by the size of the property and is approximately 1/10th of one percent of the purchase price; property insurance; utility service installation charges; moving costs; and maintenance fees.
6. Additional Property Ownership Costs: Other costs to consider include utilities, water (in Bermuda, some properties have access to a well or are connected to the Bermuda Waterworks – during the drier months, your water supply may need to be supplemented), and building maintenance.