Most people don’t have enough funds to finance their property acquisition or home construction projects in one go. Often, they’ll rely on the income that comes to them over time; this could mean that it’ll take several years to complete the purchase of property or building project.
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But if you’d like to wrap these things up within shorter time spans, you have the option of taking out a mortgage loan. Primary mortgage institutions (PMIs) and other lenders could provide you with a loan that’ll help you fund your real estate concerns. You can then repay that loan over a specified period.
You can either apply for a mortgage facility from the National Housing Fund (run by the Federal Mortgage Bank of Nigeria) or seek financing from banks. If you’re interested in the former, read our article How to Obtain a National Housing Fund Loan.
Here are the steps to obtaining a mortgage loan in Nigeria.
Know What You Can Afford
Mortgages are a long-term commitment; you’ll have to be ready to repay the principal and interest over several years or even a couple of decades. For that, you’ll need to be sure that your income throughout that time will cover the cost.
At first glance, the long timespans associated with mortgage loans may seem like a good thing for the borrower. However, if the interest rate is high (as is the case with most facilities of this kind), you might end up repaying several times more than you borrowed.
Your income and savings will determine what kind of land you will want to acquire, or the type of structure you want to put up. This in turn is a predictor for the value of the loan you’ll take out—the costlier the project, the more you will need to borrow. There’s more on this below.
Evaluate the Property
Another factor you’ll want to consider is the nature of the property you’d like to buy or build. As we’ve just pointed out, costlier properties require more money to construct. Ideally, you should go for something that won’t make your loan difficult to repay.
But there’s a catch: cheaper land or buildings tend to be located in less developed areas, i.e. places on the outskirts of cities or in rural districts. Paying mortgage interest for those sorts of properties isn’t the smartest thing to do, because the value of those properties may not increase by much over the loan tenor.
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Instead, you should be requesting a mortgage for projects that could yield you a high return on investment. The ROI on your property should not be too far off the interest rate of the loan you have taken for it.
Choose A Lender
There are several things to weigh when selecting a lender for a mortgage loan. We’ll talk about three of them here.
First, compare the interest rates on offer from banks and primary mortgage institutions (PMIs). We have already noted that interest rates on mortgages are pretty high—at least 20% in many cases. Go with an institution that’s likely to give you a relatively decent offer (in the light of what’s available elsewhere).
Also, look at the tenors. Loan repayment periods may approach 20 years. But like we’ve already noted, longer tenors aren’t always a good thing for you, especially if the interest rates are high. It’s in your interest to settle the debt within a shorter period if you can.
Finally, there’s the equity you’re expected to contribute. The lender will want you to pay a part of the total cost of the project you’re seeking a loan for. That amount—the equity –may be at least 20% of the total cost.
Make A Formal Request
After choosing a lender to apply to, your next move should be to make a formal request for a loan.
Banks and PMIs will want you to provide some kind of documentation pertaining to the land you want to buy or the building you’d like to finance. They will also want to check things like your monthly income and expenditure, debt profile, and the value of the property in question.
Some of the things you may be asked to provide include evidence of income, title documents to the property, payslips from your employer, property valuation report, bank statement (for the past six to twelve months), offer letter from the property owner or agent, approved survey and site plans, and your equity.
These things will enable the prospective lender to decide whether you’re able to repay the loan.
Secure A Mortgage Loan
If the lender deems you qualified for a loan, you will be asked to sign relevant papers. After this, you’ll receive financing for your property.
Mortgage costs are often quite high; not everyone can afford them (and that’s putting it mildly). Be sure to evaluate the options available to you before you decide to get a loan.
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