What is a Mortgage?
A mortgage is a lien on a property/house that secures a loan and is paid (interest and principal) in installments over an agreed period of time. The mortgage secures your promise that you’ll repay the money you’ve borrowed to buy your home.
Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. It is essential you select the one that is right for you, your future plans, and your financial situation.
How to qualify for a Mortgage
To qualify for a mortgage you must;
- meet certain eligibility requirements;
- be financially capable of servicing your mortgage (ideally repayments cannot exceed 33% of borrower’s earnings);
- be credit worthy with no history of bad debts;
- provide adequate security for the loan;
In terms of mortgage eligibility, prospective borrowers will be assessed for their eligibility to apply for their preferred product. The eligibility requirements include;
- Age: Prospective applicants must be at least eighteen years and no more than 65. The maturity of the mortgage should not extend beyond the applicant’s retirement age.
- Purpose of the Loan: The mortgage must be used to finance the acquisition of a home.
The Morgagee must also be sure of the financial ability of the mortgagor. The following determines the financial ability of the mortgagor.
- Income Qualification: Applicants must provide proof of their gross monthly income and allowances by way of an employment contract, tax returns, and most recent pay slips. Variable income such as overtime and bonuses are usually not considered as part of gross income. Applicant’s who are self-employed shall need to provide an income statement prepared by a qualified accountant. This should be supported by historical information on bank accounts to prove the income declared;
- Income Security: Applicants must be able to provide evidence of employment for a period of at least three years. Applicants who are not in formal employment would provide satisfactory evidence of their ability to sustain the declared level of income;
- Capacity to Service the Loan: Applicants should be able to provide complete and accurate information regarding their financial responsibilities and commitments. The applicant’s monthly repayment obligation under the agreement must not exceed 33% of their gross income. Where the applicant has other existing loans, the combination of mortgage installment plus other loans must not exceed 33% of the gross income;
- Deposit: Prospective home buyers are required to contribute a minimum of between 20% of the property value. The borrower will be required to provide evidence of this amount at the time of application and deposit it in a designated account before the loan facility is disbursed;
- Credit Worthiness: Credit reference checks will be carried out on all credit facilities the applicant may have contracted. The Mortgagee must be satisfied that the applicant has a good credit rating before the mortgage is granted.
Another aspect that is considered in mortgage is the Quality of Security, which includes;
- Tenure: The mortgage facility has to be secured by an unencumbered freehold or leasehold property. In the case of leasehold properties, the remaining term of the lease must exceed the maturity date of the mortgage by at least 10 years;
- Value of Security: A valuation report prepared by a surveyor acceptable to the mortgagor and dated no earlier than six months prior to the application would be submitted. Once a decision has been made to purchase the property, the purchaser would contract the services of an approved surveyor to prepare a Valuation Report of the property on his/her behalf;
- Duration of the Mortgage: Usually the maximum duration of a mortgage loan is 10 years. Borrowers may choose to pre-pay their mortgages, an option which may attract a small penalty;
- Instrument of Security: Most loan facilities must be secured by a legal first mortgage on the land and building, life insurance and fire insurance assigned to the Mortgagee;
- Life Insurance: Mostly, a life insurance coverage on the duration of the mortgagors covering the loan amount is required. This insurance serves as additional security for the mortgagor in the event of death. That is, if the mortgagor should die during the term of the loan, the proceeds of the life policy would be used to pay off the loan which would ensure that the family is not left with the outstanding debt;
- Comprehensive Property Insurance Cover: The borrower shall be required to maintain a comprehensive all-risk insurance coverage for the replacement value of the mortgaged property. Both life insurance (if required) and comprehensive insurance must be assigned to the mortgagor during the term of the mortgage
So for those of us who think accessing mortgage in Nigeria is impossible, now we have it laid bare.
The question is; are you eligible for a mortgage?