Process of Taking out a Mortgage; Key Steps
Owning a house is something many aspire to do but being able to put together millions of shillings as one lump sum payment to buy a house may not be a privilege most enjoy. Through mortgage financing owning a home has become manageable, cost effective and affordable. It is however, a big commitment; one that you will be in for ten, fifteen or even thirty years. This may seem like quite a task but with some research and the right lender, the process can be a fairly smooth one and one that you as the borrower can actively participate in and control. It is a worthwhile investment since you will now be a home owner.
There are many players in the mortgage market, most of whom offer similar products at more or less the same prices. A smart way to choose a mortgage lender would be to look at who offers not only the best rates but also the most convenience in the process. A bank that offers a one-stop-shop type of service is one to go for. This type of lender will walk with you from start to finish, offering invaluable counsel and facilitating every step of the mortgage process for your convenience. Before one goes out looking for a property to buy, it
is advisable that you visit your intended financier and have them evaluate your finances and assess exactly how much you would actually qualify for. This will typically entail the following aspects that relate to your current financial status as well as your financial history.
• Income: Most financiers will ask for at least three pay slips from your current employer. Any additional income apart from monthly salary say rental income will also be considered. The prospective borrower will be required to
present bank statements for the previous twelve months at least. Self-employed customers will be required to show their source of income to
service the debt and in this case, audited books of account will suffice.
• Debt: The financier will look at your debt/credit history which outlines how well you have been servicing any current loans you may have. This information is sourced from the Credit Reference Bureau (CRB) in whichever jurisdiction. The financier will check on your monthly debt obligations sometimes referred to as recurring debts which include but are not limited to :car loans, student loans, your monthly payments on any credit card debt and any other loans that you might have. The bank will then calculate your debt to income ratio which is the sum total of all your debt costs per month divided by your monthly income and advise on its favourability as pertains to the amount you would qualify for.
• Age: Most banks offer repayment periods of a maximum of 25 years subject to retirement age. The longer the period, the lower the interest rate and therefore the lower the monthly payments Once the bank is happy with your documentation it will give an offer which is a binding document between the bank and the borrower. Finding the property Once you know how much you are qualified for, you may now go into the process of finding property worth
the said amount. Some banks have a list of property developers that they partner with which tends to be a good place to start. This is a good place to start your search.
A sale agreement is a written contract between a seller and a buyer for the purchase and sale of a particular property. The buyer agrees to purchase the specific property at an agreed upon price and to fulfill other terms and conditions with regards to the transactionas specified in the contract.It is imperative that you do your due diligence on the property you have chosen before entering into a sale agreement. You can have your lawyer do a search with the property registrar in your jurisdiction confirming that there are no encumbrances on the property that would prevent its sale.
Sometimes referred to as the appraisal process; property valuation is the process of estimating the value of a piece of real estate. The valuer will be
looking at factors such as location, amenities, structural condition of the property and sale of similar properties within the same location. All these factors will be used to determine the market value of the property. This
process ensures that the price quoted by the seller is the actual value of the property.
Once the valuation report is in and everything checks out, the bank’s lawyer issues an undertaking to the seller’s lawyer stating that all things remaining constant, the money will be released to the seller within 14 days after the successful registration of the property. The latter then releases the title to the
bank’s lawyer in the borrower’s name. The borrower will be required to pay stamp duty on transfer, 4% for major cities and 2% for upcountry and a stamp duty charge of 0.1% of the loan amount. The documents are kept by the bank for safe keeping to be released to the borrower once the mortgage has been fully serviced. On disbursement of the loan the borrower will be required to take property insurance and mortgage protection insurance will be paid on an annual basis. The whole process of taking out a mortgage ideally
takes about ninety days.
By George Laboso, Barclays Bank | Head of Mortgages