Let’s face it, we Nigerians take great pride in building our own homes. But with inflation on the rise, the costs of construction continue to rise daily. Because of the rising inflation, many people have started learning about alternative ways to finance home ownership. Previously, these alternative options including mortgage loans had been neglected and overlooked. However, because it is not a very popular option yet, applying for a mortgage loan is still often confusing for Nigerians due to the technical nature of the real estate market and the banking system.
This article will review the things to consider before buying a home with a mortgage loan. Things like how to apply for mortgage loans in Nigeria, how to know if you’re eligible to apply and what documentations are required.
What are mortgage loans?
If you want to pay for something or invest some money into your business and you do not have that money, you may turn to people who can lend you the money and pay it back at a later date. A mortgage loan is the same. But this time, you are borrowing to buy any form of real estate, whether that’s land or hotel or shopping mall or your own home. As the money involved is usually substantial, mortgage loans are usually a long-term loan. Therefore, like all formal loans, you must be eligible to apply for it.
How to qualify for a mortgage loan
There are certain criteria to be met in order to be eligible for a mortgage loan. Variations in criteria depend on the mortgage bank lending you the loan, and the size or scale of the property you need the mortgage for. However, there are standard requirements that you must meet to be eligible for a mortgage loan.
These include:
Age: It is a general requirement that you must NOT be younger than 21 years of age and not older than 60 years as at the time you apply for the loan.
Income requirement: Income level must show capability of being able to repay the mortgage loan. Therefore, one must provide proof that one has a job or business from where one earns a steady income. Presenting an employment letter from your employer showing your job title, length of employment, and salary is sufficient if you are an employee. On the other hand, a profit and loss statement is required of a business owner. It is also a standard practice for the lender to request account statements covering 6-12 months.
Credit score/history: Having a healthy credit score increases one’s chances of success in applying for a mortgage loan. How do you know your credit score? Having a history of paying one’s debts back as at when due. Lenders see this and are able to determine that one is not a defaulter, and that one is likely to pay back if borrowed the loan. Usually, your financial institution should provide you with this or guide you on how to get it.
Down payment: Applying for a mortgage loan requires a down payment. The down payment is usually between 20-30% of the total mortgage loan itself. Once the value of the property is determined, you can calculate the down payment and have it ready.
Legal documents: To be eligible to apply for a mortgage loan, there is a need to provide legal documents to ascertain there are no legal disputes on the property and to ensure that the lender is providing funds to the rightful owner of the estate. The last thing one wants is to take out a loan on the wrong property or fork out the loan to the wrong person. That’s why these documents are necessary. The documents include the certificate of occupancy(CofO) or title deed, survey plan, building plan etc.
Required Documentation
Several documents are needed to apply for a mortgage loan. They include:
- Proof of identity: This is usually your national ID card, international passport, or driver’s license.
- Income verification: Includes payslips for the last three months, or profit and loss statements and bank statements for the past 6-12 months.
- Property documents: Title documents (Certificate of Occupancy), survey plans, and approved building plans if applicable.
- Tax clearance certificate: Typically for the last three years.
- Letter of consent to mortgage: From your chosen primary mortgage bank (PMB).
Now that you are sure that you have qualified to apply for a mortgage loan and have all the required documents, how do you apply for a mortgage loan?
Choose a Primary Mortgage Bank (PMB): Owning a home with a mortgage in Nigeria requires that you do your own research and find which of the banks provide mortgage loans. Most Nigerian banks do. However, the difference is in the interest rate, terms of payment, and ease of securing the mortgage loan. It is advisable to choose the terms that are sweet to your pocket and give you the best chance to pay back. Alternatively, some banks have agreements in place with some real estate companies to save you the trouble of legal documents. For example, Access Bank and Mixta Africa have such mortgage loan understanding. You can also research for more options. The idea is to give you a high chance of succeeding in your mortgage loan application.
Open an Account: The mortgage bank will require you as the applicant to open a savings account with them. The loan processing is tied into this account, and it is into this account you pay both your deposit and future installments. With your BVN and identification papers, opening an account should not be difficult. But if you already bank with your mortgage bank, it’s even better, as it reduces the requirements such as credit score, bank statement, opening a new bank account etc.
Submit Application: Getting to this stage means that you have done the heavy lifting part of the process. You are now closer to being a proud homeowner than you were at the beginning of the process. Once the mortgage loan application form has been filled out, gather all the necessary documents, submit and wait for the final stages. This is the loan approval and disbursement.
Approval: Despite the work that has been done, getting approval for the mortgage loan is not a straightforward business as one might think. The mortgage bank must review the application, conduct necessary checks (like property valuation), and assess your credit-worthiness before approving the loan. This might take a couple of weeks. Except if you have opted for a mortgage loan where the bank already had an agreement with the real estate company, then the approval process will be quicker.
Loan Disbursement: Upon approval, funds will be disbursed according to the terms agreed upon in your mortgage contract. You are now a proud homeowner without having to cough out the millions or billions of naira to own the house.
Conclusion
There is a wide range of mortgage options in Nigeria. One of them is the MREIF, introduced by the Federal Government. The MOFI Real Estate Investment Fund (MREIF) is geared towards providing long-term, low-cost mortgage financing to make homeownership more accessible and affordable for Nigerians. This is why it is the lowest interest mortgage in Nigeria. The MREIF website has all their information provided to make the process easier for you.
