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Important Things To Know When Getting A Mortgage In Nigeria

Every now and then, we (Abbey) have been privileged to grant people the means to own their own home, living up to our motto, “we make homes happen”.  I once heard of a story of a man, who bought a three-bedroom Semi-detached duplex in the Lekki Suburbs and threw a housewarming party. Everybody at the gathering expressed positive assessments about how delightful the house is and how great the area was. Some even made comments on the house, which cost about ₦40million was an extraordinary deal leaving the young man feeling rather delighted. Very few persons asked him how he managed to have paid for it. It happened that the buy was financed through a blend of debt and equity. Since so many people detest debt but however wish to own a house, you might just start thinking what it takes to possess a house financed by means of a home loan (mortgage)

  1. Mortgage Originators – In the real estate market in Nigeria, these are the players. They are your typical Primary Mortgage Institutions (PMI), National Housing Fund (NHF), Banks and developers. Considering that prevalence of modern housing developments in Lagos, it is more probable for one to purchase a house from a mortgage originator than any other way. What this means is that, to purchase a House that is built with genuine materials and delivered on schedule would mean obtaining for the right Developer. What this also means is that you must look out for a Primary Mortgage Institutions (PMI) that is ready to offer the best arrangement in terms of tenor, Interest rates, collateral etc.
  2. Agents – Real Estate Agents and Lawyer also play an significant role in alleviating any risk that may arise from the choices you make from the mortgage originators above. Abbey being a credible PMI also offers legal services, ensuring you make the best deals possible.
  3. Interest Rates – It is no news that mortgage rates in Nigeria are high; Interest rates range from 15% to 25% per annum in Nigeria and that is excluding fees and other charges. Putting this into consideration, you have to get yourself ready for the financial obligations that come with getting a mortgage loan.
  4. Tenor – This is the period giving to repay a loan, it is also an important consideration in the payment of a loan. The longer the tenor, the lower and favourable repayment you make on the principal and interest over a longer period.
  5. Equity – This is the amount you are to provide from your own savings as an addition to the mortgage when you plan to purchase a house. This amount averages between 20%-30% of the entire loan you intend for the purchase of the house. Essentially, the more equity you contribute or provide at the inception of your loan application, the lower the loan amount you have to borrow from the PMI or bank.
  6. Location – Much attention should be paid to the location of your property, should you wish to purchase it with a mortgage. It will be absurd buying a property in a location that has little or no potential for economic development. When getting a mortgage loan the timeline for the economic capability of your property location to materialise should always be lower than the mortgage tenor. For example, if you purchase a house in Ikorodu with a mortgage loan payable over a tenor of 10years, and property values in Ikorodu double over that same period, then the value of the property would also increase and this would have helped reduce the interest rate paid over the years.
  7. Cap Rates (CR) – This is basically the return on investment (RoI) a property can generate. In other words, if you own a property worth ₦40million that can make/produce a going rent of ₦4million per annum, the CR for that property is 10%.  In an economy like Nigeria where interest rates are double digits, cap rates matter. It is important to make sure the rentable value of your property offsets the interest payable on it at any given year, otherwise you basically under water.
  8. Percentage of your Income – It is advised that’s payment for mortgage should be one-third of your income or take-home pay. When you take a mortgage that grabs 33.3% of your take-home pay, it is likely that you must have risked in a lot of equity into the purchase of the property which is a very good thing. Likewise, you get to free up some cash which you can use for your investments and savings.
  9. State – According to the Land Use Act, the state governments have the legal authority  and power over lands within their states, making them very important in the purchase of a property within any given state in Nigeria. It is imperative to verify Land Ownership titles from the Lands registry. It is also imperative to know what pertinent fees are for registering land titles, seeking governors’ consent, land use charge, land surveys etc.
  10. Taxes – Revenue from the sale of property in Nigeria is taxable for Capital Gains Tax (CGT). At present, there is no CGT payable for the sale of a property which the owner lives in. Nonetheless, if it is a property that you own but do not live in it, then a CGT will be paid when it is sold.

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