In simple terms, a mortgage is a legal agreement that allows you to borrow money from a bank or building society, at a specified interest rate, in order to buy/build a house. The concept of mortgage in Nigeria is pretty straightforward.
It is a loan in which a property (whether land or building) is used as collateral. The borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set time span until he pays back the lender in full.
How it works is that when you borrow money to finance your building project, the lending organization takes ownership of the property title and only returns it to you when you have fully paid off your debt.
These loans usually come with low interest rates and their life spans can go for as long as 15 to 30 years.
Mortgages were specifically designed to make home ownership more affordable to the average Nigerian.
Brief History of Mortgage In Nigeria
In Nigeria, where the majority of the citizenry are of the middle class socio-economic standing, purchasing a home fully funded by your own personal capital might be an arduous task and will probably take many years of savings to accomplish.
A mortgage however, reverses that system and turns it in your favour. How?
Instead of saving for about 20 years to finally be able to afford a home, a mortgage can help you purchase the home, and then pay gradually over a period of that same 20 years.
The organization created by the Federal Government to cater for mortgage in Nigeria is the National Housing Fund (NHF).
There are however several other commercial and private facilitators of mortgage in Nigeria now. Almost every bank has a mortgage arm from which its clients can obtain a loan to finance their housing projects.
Nigeria currently has a housing deficit (to the tune of over 18 million) which would require a huge amount of funds in addition to having to produce a minimum of 720,000 housing units annually for the next 20 years in order to close the housing gap in the Country.
Today, the problem of inadequate provision of housing in Nigeria stems from the inability of the national housing fund (NHF) to fund housing development.
These housing inadequacies, particularly for the low income group or the average poor citizens have been complicated by high rate of population growth, resulting in overcrowding, deplorable urban environment, and degrading infrastructure.
Thus, it is a known fact that in Nigeria the demand for housing outweighs the supply for housing.
Existing realities indicates that the potentials of the mortgage industry in Nigeria remains largely untapped as it is constrained by factors undermining the access to it by the average poor citizen in Nigeria.
Basically, the role of mortgage in the development of housing in Nigeria is at minimal, as a result of government policies on housing which have been inconsistent.
Though government has sought to encourage home ownership, inadequate funds have been channeled towards housing development. Funding of housing has been left in the hands of individuals who rely on the private housing sector for finance in development of housing.
However, we’re still optimistic that the government will see the light and understand that mortgage finance is the most central element in housing development in Nigeria.
The entire system of mortgage in Nigeria must be overhauled in order for things to be better.
How Does Mortgage in Nigeria Work?
Like I said earlier, mortgages are loans which mean that they typically come with interest rates.
Mortgage interest rates in Nigeria range between 7-10% for the NHF and between 15-25% for commercial mortgage institutions.
Aside from the interest payable, the potential buyer must also have a certain percentage of the total amount needed for the purchase readily available; this amount is known as equity and should range between 30-70% of the total cost of the home.
Another key factor that mustn’t be overlooked is the tenor of the loan. The mortgage tenor is the length of time required to pay back the loan. In most situations in Nigeria, the maximum amount of time given is 20 years.
Lastly and most importantly, when you approach any mortgage institution for a loan, the biggest factor that will consider before approving your request is your income.
Ideally, mortgage payments should not take more than 25-30% of your monthly income, this ensures that you still have enough to be able to take care of other responsibilities and hence, do not default on your loan payments.
What documents are required?
This may vary depending on the institution but the items listed below are always required:
- A comprehensive statement of account ( at least 12 months)
- Employment and confirmation letter (for employed individual)
- Certificate of Incorporation of business (for business owner and entrepreneur)
- Means of identification (mostly, National ID card)
- Utility bills
- Application form (to be gotten from the mortgage institution)
- Original title deed of property ( To confirm that you’re the true owner and the property is not in contest)
In Nigeria, a lot of people are still very skeptical about taking home mortgages; however, this is one of the surest and easiest ways of owning your own home.
I advise that you sit down and do a proper analysis of your financials to see if a mortgage can be in the works for you.
Also, if you’re concerned of being overly burdened with paying off interests, I recommend trying out the National Housing Fund as their interest rates are reasonably lower.
However, this will only work if you’re seeking a small loan as their maximum loan amount is N15million. On the upside, if you don’t have a lot of equity, this will still work for you as the NHF can finance up to 90% of the cost of the home.
However, if you’re looking to take an amount over N15million, then you should consider going to a commercial mortgage institution. In any case, you would do well to do your research on the institution, the property and also a proper and feasible analysis of your financials to ensure that you can really afford the mortgage.
If in doubt, please engage the services of a professional property and investment broker to be sure that you are making the right step.