We have to be honest and admit that most people can’t afford to pay the entire cost of owning a home immediately. But getting a mortgage allows anyone to buy a home with just a portion of the price. This involves making a down payment while getting a loan from a financial institution to cover the balance. You then repay the loan with interest over a period of time.
If you are looking for alternative ways to finance housing in Nigeria, grab a seat. I have been there and done the same thing. So I have a few things to share with you that will help in achieving your goal.
I bought my house with a mortgage, but being a first-timer, I can’t tell you it’s a walk in the park. But because you are a first-timer like I was doesn’t mean you should go through the process naively like I did.
So let’s look at what it takes to buy your own home with someone else’s money (that’s what a mortgage is, yes?). We will also look at the process involved and the documents you will need to get the mortgage.
The whole process of owning a home with a mortgage is streamlined into three stages:
- You identify a home you want to buy.
- You approach a bank for a mortgage.
- You get the mortgage and become a homeowner.
Now, not all properties can be bought with a mortgage. This is why you should look for a home that can be purchased with a mortgage and is available for sale. Some real estate giants like Mixta Africa have homes with mortgage facilities, but not all real estate companies do. Hence you must do your homework.
After identifying such property, the real challenge comes at the second stage where you obtain the mortgage for the home (or get a pre-approval from the bank). It is where we will be paying close attention to, and we will do this under three categories namely;
- Criteria you need to qualify or be eligible for a mortgage
- Documents you must have to apply for a mortgage
- How to apply for a mortgage for your home (or any real estate property).
Criteria for eligibility
Age: Anyone aged 21 years or above can apply for a mortgage loan in Nigeria. However, applicants must also be not older than 60 years of age. I was 34 when I applied and age wasn’t an obstacle for me. If you are in this age bracket too, then you can move to the next.
Income Requirement: Mortgage loans are usually long-term commitments, hence any lender will want to be assured that the borrower has the ability to pay back the mortgage. This usually requires a steady source of income, whether from stable job/employment or through business.
Credit history: Before applying for a mortgage loan, you should prioritize clearing any outstanding debt you have with any financial institution. Why this is important is that the outstanding loan will show up on your credit history and partially impact your credit score. You can be sure that your lender will be taking a look at your credit score to see how healthy it is. On the other hand, if you can show that your income is more than enough to manage both existing debt and proposed mortgage comfortably, then approval may still be possible.
Down payment: The required down payment on a house is usually 20% of the mortgage loan. This is the ideal amount to help you reduce your monthly payment and reduce the mortgage amount generally. It is better to save up towards the down payment before applying.
Insurance: Insurance protects the interest of both the lender and the borrower from unexpected losses like fire, natural disaster or damage of any kind. This is why insurance is an important part of obtaining a mortgage loan. The insurance covers both parties in cases of damages and is one of the four areas your monthly payment goes to (more on this later).
Legal Document: This is the fifth requirement for you to qualify for a mortgage loan. More on this below.
Legal documents
It goes without saying that paperwork is needed to get a mortgage or any loan from a financial institution. The paper needed for the application include:
- Personal identification documents such as National ID card, Driver’s license, or International Passport.
- Credit history papers discussed earlier.
- Property documents,
- Insurance policy documentations and,
- Employment or business verification documents.
Before applying for a mortgage, it is crucial to know the mortgage options available in Nigeria.
Types of Mortgages Available in Nigeria
- Fixed-Rate Mortgages: A fixed-rate mortgage provides predictability and stability as interest rate is fixed throughout the duration of the loan. As a result, monthly payments do not change over time.
- Adjustable-Rate Mortgages (ARMs): Interest rate of an Adjustable-rate mortgage fluctuates with the market conditions making it ideal for borrowers in an economy where interest rates are predicted to go lower than the current rate.
- DUO Rent-to-Own scheme: This is a company specific product, where you pay rent and it becomes part of your equity to own the home. In simpler terms, the rent paid contributes to the down payment on the home making it ideal for some first time home owners.
- National Housing Fund (NHF): Nigerian workers contributing to the National Housing Fund can get affordable mortgages through the Federal Mortgage Bank of Nigeria (FMBN) at low interest rates and long repayment periods.
- Federal Housing Authority (FHA) mortgage: The FHA mortgage is designed to make homeownership more accessible with lower down payment requirements and more flexible credit criteria compared to conventional loans. However, this increased accessibility often comes with higher interest rates and the inclusion of mortgage insurance premiums, which can increase the overall cost of borrowing.
What Your Monthly Mortgage Payment Cover
A mortgage payment typically consists of four components: principal, interest, insurance and tax. So when you pay monthly, these are what the payment goes to cover. Over time, your payments gradually reduce the principal balance, increasing your equity in the home.
Conclusion
Once you’ve identified a suitable property and chosen a mortgage option that’s suitable for your pocket, you can then proceed with the loan application. Upon successful loan approval, you become the homeowner and begin making regular monthly payments as agreed in your mortgage agreement.
