It is a fantastic plan to work towards owning your own landed properties in Nigeria (and perhaps elsewhere). And one vehicle that can empower you to do so is taking a mortgage. Since real estate value is typically in millions and billions which may not be available in bulk, getting a mortgage simplifies the task.
Note that real estate value only increases with each passing year. House rents are on the increase. Lands and houses are getting more expensive. That is as true elsewhere across the globe as it is in Nigeria. So, the best time to have your own house or land is NOW. I guarantee you that in the next five years, that property would have appreciated in value. That is where obtaining a mortgage becomes useful and convenient.
What’s more, you may recoup the funds you invested in building or buying that house or land by renting out part of it. Just as several house owners are already doing.
Also Read- Savings vs Investment: The Wise Choice
What is a Mortgage?
A mortgage is a loan offered by a lender in order to buy or maintain a landed property, the property itself serving as the collateral. While the borrower pays back the loan with the interest on it, he/she cedes the ownership or title over that property to the lender. You may call it a ‘transfer of ownership of the property’ to the lender. Thus, the borrower takes full ownership of the property only when he/she fully pays the mortgage.
Another form of mortgage allows a borrower to take a loan for other purposes, with his/her existing house or land as collateral. And so he/she reclaims ownership of the property when the loan and interest on it is fully paid.
A borrower (or mortgagor) pays the mortgage at regular intervals (especially monthly) over an agreed period of time. It is often spread across several years. Should the borrower default in paying back that debt as expected, the lender reserves the right to take possession of that property.
Mortgages in Nigeria: Why Take a Mortgage?
- Rather than pay other persons to rent a house, you indirectly pay yourself to have your own house through mortgage. You thereby save yourself wasted funds in the long run.
- A mortgage can be conveniently paid back in installments across several months or years instead of a huge one-time payment. Such installments should be small enough not to affect the stability and availability of your finances. So you have money to service other needs.
- Paying a mortgage allows you to plan your savings (or investments). That way, you do not need to stop or take out your savings.
- You can generate significant income from buying a rental property with a mortgage. If you are fortunate to get tenants that pay regularly, it may help to pay off the debt faster.
Types of Mortgage
There are two general types of mortgage obtained from lenders in Nigeria which are:
Legal mortgage: The full legal title or ownership of the property is given to the lender/mortgagee. Meaning the borrower is not allowed any control over the property until he/she totally pays off the mortgage. This is a more secure form of mortgage.
Equitable mortgage: The full legal title or ownership of the property remains with the borrower/mortgagor. Only the equitable or beneficial interest over the property is given to the lender/mortgagee. The borrower/mortgagor is required to sign a legal mortgage and Consent Form. He/she then transfers the title of deeds over that property to the lender.
If the mortgagor fails to pay the mortgage as expected, the lender prepares a legal mortgage to enforce the sale of that property. Otherwise the mortgagor retains his/her property and the legal mortgage becomes useless once the mortgage is fully paid.
Obtaining Mortgage from Banks in Nigeria: Criteria
In order to qualify for a mortgage in Nigeria, ensure you have the following conditions met:
- You must have a good credit score. That is, no history of borrowing and not paying back a debt on time.
- You must have a reliable source of income (to finance the mortgage payoff).
- Check your affordability status and monthly spending. Ideally you should be able to pay at least one-third of your net income monthly to offset the mortgage.
- Save up to a sizable equity. Equity refers to the amount you can easily contribute towards paying for the target property. Mortgage lenders in Nigeria typically demand that the borrower must have 20% to 50% of the value of the property ready as savings. But with the National Housing Fund (NHF), you only require 5% equity to apply for a mortgage.
- Find out and prepare towards extra charges. You will likely pay for development levy, insurance fees, appraisal fees, interest rates, management fees, and maybe other administrative charges. So be ready.
- Search and identify the property you need. Better you discuss your intention with the property agent/broker.
- Prepare the necessary documents to accompany the application form. Documents required to apply for a mortgage in Nigeria include:
- A Letter of Introduction from your employer
- Letter of employment
- Copies of documents relating to the target property
- Approved building plan of the property
- Your 6 months bank statement
- Payslips or paychecks (at least months) to prove you have been receiving your salary regularly
- Utility bills bearing your address (electricity, LAWMA, etc)
- Government-issued ID (such as international passport, National ID, driver’s license)
- Offer letter from the house agent (to prove you are interested in the property)
- An account to be opened with the lender (preferably a salary account)
Banks that Offer Mortgage in Nigeria
Returning to our earlier question. Yes, there are designated banks that provide mortgages to both individual and corporate borrowers in Nigeria. Referred to as Primary Mortgage Banks (PMBs), there are at least 17 of them under the control of the Federal Mortgage Bank. The Federal Mortgage Bank (FMB) receives funds from the National Housing Fund (NHF). These funds are thereafter disbursed to potential borrowers through the accredited Primary Mortgage Banks. See the list of accredited PMBs below (as at February 2023).
- Infinity Trust Mortgage Bank Plc
- Abbey Building Society Plc
- First Trust Mortgage Bank Plc
- Nigeria Police Mortgage Bank
- Delta Trust Mortgage Bank Ltd
- Jigawa Savings & Loans
- City Code Savings & Loans Limited
- AG Homes Savings & Loans Limited
- LivingTrust Mortgage Bank Plc (Formerly Omoluabi Mortgage Bank Plc)
- Lagos Building Investment Company Plc
- Brent Mortgage Bank Limited
- Gateway Mortgage Bank Ltd
- FHA Homes Savings & Loans Ltd
- Jubilee Life Mortgage Bank Plc
- Homebase Mortgage Bank Limited
- First Generation Mortgage Bank Ltd
- Platinum Mortgage Bank Ltd
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