Apartment ownership or purchase can be challenging, particularly for those with low income. However, a mortgage plan can provide significant relief from the problems associated with owning real estate.
According to the Bank of Industry, there is a shortage of about 28 million housing units in Nigeria, and filling the gap will cost N21tn. Some regions have higher rent prices than others. For instance, the cost of housing increased significantly both on the island and the mainland parts of Lagos State between 2021 and 2022. A mini flat in Mangoro, which would typically cost between N180,000 and N200,000, was increased to N250,000, according to Financial Street’s findings. In Shomolu, it increased from N300,000 to N700,000.
The structures in other cities, like Abuja, are renowned for being far beyond the means of low-income earners. The immediate past president of the National Institute of Building, Kunle Awobodu, explained why the nation’s housing deficit continues to soar despite the large number of vacant homes nationwide.
He said, “The number of empty houses in Nigeria, particularly in Abuja, is well known. Those houses that are empty are mostly located in high-brow areas. But the suburbs are congested.
“People from the suburbs also work in the city centre. Obviously, the issue has to do with affordability because those in need of accommodation cannot afford the empty houses.”
Mortgages are loans where real estate or other types of property are pledged as security. The borrower and the lender (mostly banks) come to an agree that the former receives cash up in advance and then makes payments over a predetermined period of time until they fully reimburses the lender.
Other names for mortgages include claims on real estate or liens against it. The lender has the right to seize the property, if the borrower stops making payments.
For instance, when a homeowner sells their home, the lender receives a pledge and becomes entitled to the property. In the event that the buyer cannot pay their debt, this protects the lender’s interest in the property. When a mortgage is in foreclosure, the lender has the right to evict the occupants, sell the house and use the proceeds to settle the debt.
The cost of a home is frequently much higher than the sum that most households are able to save. Therefore, mortgages enable people and families to buy a home by making a relatively small down payment, like 20 per cent of the purchase price, and getting a loan for the remaining amount. The loan is then secured by the value of the property in case the borrower defaults.
Prospective borrowers must be approved by mortgage lenders following an application and underwriting procedure. Only those that have enough assets and income in comparison to their debts to practically carry the value of a home over time are given mortgage. The ability to repay a mortgage is also determined by a person’s credit score. The interest rates on mortgages also change, with riskier borrowers typically paying higher rates.
There are various sources of mortgages. Banks and credit unions often provide home loans. There are also specialised mortgage firms. To assist prospective home owners in comparing rates from various lenders, one can also work with an independent mortgage broker.
There are ways for low-income earners to access mortgage plans without going beyond their budgetary limits. The National Housing Fund, via the Federal Mortgage Bank of Nigeria, is one of the methods. To access the loan, a monthly contribution of 2.5 per cent of one’s basic salary must be made. Any contributor may borrow money from the national pool of funds created by contributors after contributing for a minimum of six months.
A registered and duly accredited mortgage loan originator (such as Primary Mortgage Banks) is instructed by a contributor interested in receiving an NHF loan to package and send the application to FMBN.
The documents required include:
- Completed application form.
- Photocopy of title documents
- Current valuation report on the proposed house to buy or bill of quantities for the house.
- Three years tax clearance certificate.
- Evidence of NHF participation
- Copy of pay slips for the previous three months.
- Depending on the requested loan amount, equity contribution or personal stake may be required.
NHF housing loans are repaid in equal monthly instalments from the beneficiary’s income. The benefits of this method of repayment include affordability and convenience. To process a loan application, a potential borrower can communicate with a mortgage loan originator in Nigeria. The property used to guarantee the loan is the only form of collateral. An NHF loan facility may only be accessed by a contributor once in their lifetime. A contributor is qualified for a loan with a maximum amount of N15m that must be repaid over a maximum of 30 years at six per cent interest.
Before submitting application for an NHF loan, a prospective applicant is expected to have a land with a good title. One can also apply for an NHF loan as an individual to purchase land for development purposes or to directly purchase from government or private estate developers.
For completed residential properties, the application eligibility specifies that the applicant must be at least 21 years old and makes a minimum of 350,000 per month. The candidate must reside in Nigeria and be employed there.
A copy of the most recent paystub, an original stamped six-month bank statement, a letter of awareness from the employer, a copy of the registered title, and a copy of the approved building plan are all required documents for obtaining the loan.
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