Factors to consider before qualifying for mortgage in Nigeria.
Buying a home, for
most people, is one of the biggest financial challenges they will ever
face. Only a few can afford to buy a home outright with cash. The
majority will have to borrow to buy a property, yet, only a small
segment of Nigerians, the high-income earners, qualify for the
available mortgage loans offered through various accredited mortgage
lending institutions and banks to support property purchase in some
Nigerian cities.
What do lenders ask for?
The terms and
conditions required for eligibility for home-loans vary across
institutions; minimum and maximum loan amounts, minimum property
values, minimum income requirements, maximum age, and so on. Lenders
generally require documentation and information covering three broad
areas: your employment history, your financial situation, and
information regarding the property you wish to purchase. Below are some
of the requirements for obtaining a mortgage in Nigeria.
Employment record
You will require a
letter of introduction from your current employer confirming that you
are indeed a permanent employee of the company. To protect themselves
from bad loans, lenders want clients to show some job stability and
tend to have more comfort around someone who has stayed in a job for a
few years than someone who changes jobs frequently or has gaps in their
employment history.
If you are
self-employed, you can expect lenders to demand more financial
information from you. You will require your company’s profile, bank
statements, and audited accounts for three years for a limited
liability company. among other documents.
How much do you earn?
Can your income
support your loan? Obviously, you need to earn enough to meet your
monthly payments. Salary stubs covering the last three to six months,
and your most recent bank account statements for a period covering six
to 12 months will reflect the fact that you have a steady income and
that you can afford to repay the loan amount. A breakdown of your
compensation package could add extra weight, as well as documentation
to support others assets that provide additional sources of relatively
stable income from bonuses, rent, or dividends. This could include
mutual fund or CSCS statements that reflect your stock holdings.
Even a huge income
may not secure your mortgage if your monthly expenses are becoming
unmanageable or out of control. Your debt ratio tells you how your
monthly mortgage payments, including principal and interest, compare to
your monthly income. It is generally accepted that your total
debt-related expenses, including your mortgage, car loan payments, and
other debts, should not exceed 35 percent of your income.
How much have you saved for a down payment?
Most lenders want
to know how much you can put down in relation to the overall cost of
the property. They usually require between 10 percent to 30 percent of
the purchase price. Your loan-to-value (LTV) ratio is calculated by
dividing the amount you wish to borrow by the property value. Ideally,
you should try to save for at least a 20 percent down payment so that
you have some equity in the property, but remember to maintain a
healthy reserve and try not to put all your savings into your home.
Who owns the property?
A most crucial step
in the process of buying a property is to obtain title documents, after
which a search at the appropriate Land Registry is essential. Various
documents are considered acceptable for the purpose of a home loan
application including a certificate of occupancy, deed of conveyance,
deed of sublease, and a deed of assignment. A Letter of Allocation will
not usually suffice as acceptable title in a mortgage application.
What is the security for the loan?
Security is usually
a legal mortgage on the property under finance. The legal mortgage is
based on the loan amount availed and is normally between 10%-50% of the
loan. The bank then perfects the title of the property in the
borrower’s name, based on the valuation of the property.
How long will it take?
The length of time
it takes to process mortgage applications varies among institutions. It
can take some time for lenders to verify documentation but if you
provide the lender with complete, accurate information, the loan
process should run smoothly. If the lender detects credit problems
however, or the information you provided is inadequate, you may be
asked to provide additional supporting documentation; this can cause
delays. Ideally, applications should be processed in under a month. In
most cases, however, six weeks to two months is a more realistic time
frame.
To many prospective
buyers, approaching a mortgage lender can be daunting, given the amount
of documentation and paperwork that is required. Bear in mind that the
objective of what sometimes appears to be a cumbersome and grueling
exercise, is to ensure that you buy a property that you can indeed
afford without undue financial stress. You will certainly stand a much
better chance of getting a mortgage if you provide what is required.
