Buying a home for your family is one of the benchmarks for success in our society. What makes buying a home harder is usually the lump sum required and the lack of knowledge of how the mortgage system works in Nigeria. Cost is the single biggest factor for the low house purchases among middle-income earners, as they would need to save for long periods to have enough money for an upfront payment. This’s where mortgages act as a better subsidy.
A mortgage lender loans a good part of the cost required to pay for a house, which you will have to pay back with interest over an agreed period of time. On the flip side, if for unforeseen circumstance reasons you’re unable to pay the mortgage bank when due, your home can be taken through a process called foreclosure.
The mortgage system is typically favourable for homeowners who don’t have sufficient cash on hand to pay for a house upfront. However, taking up a mortgage typically takes you a step closer to home ownership compared to perhaps, renting.
There are different types of mortgage loans and depending on what plan best suits your budget and the amount of payment period, you should carefully assess which is best before opting for one. Mortgage loans are characterised by their time span, usually from 5 to 20 years in Nigeria.
Before opting for a mortgage loan, ensure you understand the following factors:
- Consider your budget and monthly income. It’s preferable to have a relatively stable source of income. This is to prevent overstretching yourself to keep up repayments.
- Keep in mind other than the cost of the owning a home, you’d need to cater to additional expenses like household bills, utility bills, insurance and maintenance.
- Mortgage lenders will usually request to see proof of your bank statement to assess your income flow and expenses, and if you have any debts. This assessment is simply to prove you can keep up with repayments plus interest rates.
- The mortgage lender can decide to refuse to offer you a mortgage if they think you can’t afford to keep up with repayments.
How Does The Process Work?
When compared to regular loans, mortgages typically have lower interest rates. Typical mortgage interest rates in Nigeria range between 7-25%. The lender requires the potential buyer to have a certain percentage of the total amount needed for the purchase available, called equity. This percentage should range between 30-70% of the total cost of the home. Ideally, your mortgage payments shouldn’t require above 25-30% of your monthly income to enable stay afloat with other bills and engagements.
As mentioned above, the length of time required to pay back the loan is important. In most cases, the maximum period of time given is 20 years.
Read more: What it takes to turn your house into a Home
What Documents Do You Need?
The documents needed to get your mortgage loan to approve vary from institution to institution. They include the following:
- A comprehensive statement of account (12 months or more)
- Employment and confirmation letter (if employed)
- Certificate of Incorporation of business (if in business)
- Nationally accepted means of identification
- Utility bills
- Application form (provided by mortgage institution)
- Original title deed of property (To confirm that property is not in contest)
In Nigeria, taking mortgage loans is increasingly becoming popular and it’s one of the surest ways to owning your own home. However, before considering a mortgage, keep in mind the following questions:
- Is this the right time for me to buy a house?
- What kind of property do I need? And where?
- Do I need to take out a mortgage?
- Can I truly afford to buy a house on a mortgage?
- How much do I want to borrow and for how long?
- What are the pros and cons of taking out a mortgage compared to renting?
Also read: How to effectively transition from renting to owning a house
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