If you have gotten to a stage in your life where you are ready to buy a house, you might have to take a mortgage. But how exactly does that work? Mortgages sound like an enigma to many people. From the vocabulary to documentation, the process can seem quite frustrating.
We had the pleasure of speaking to Stella Mutai, Head of Business Development, Retail Property Finance at NCBA to answer some frequently asked questions on mortgages.
What is a mortgage?
A mortgage is a home loan taken from a financial institution to purchase or construct a house. You pay the loan back monthly, over a period of years. The financial institution extending this home loan could be a bank, Sacco or a mortgage finance provider. It is a way in which one can buy property or offer the said property as security to a financial institution.
Property ownership is a scary journey, especially for first-time homeowners. Many people don’t know where to start. There are so many fears about falling prey to fake deals, questions on whether the property is genuine, will I start making payments then I realize it’s not legal?
Coupled with that, the whole concept of a mortgage is not understood by many, it’s covered in mystery. It feels like a lifelong commitment with no exit option. NCBA takes all these fears you have and demystifies them.
Once you come to us, we assess your needs and advise you accordingly in respect to your income, and location of the property. We have Relationship Managers who will engage you to get the best solution in the market. We have a property centre where a customer can be able to access an array of all the available properties.
We work with vetted developers to make the customer’s search for a property easier. We also work with valuers and lawyers to ensure your whole property ownership journey is seamless.
What is the security for the loan facility?
The security will be the property NCBA is financing hence NCBA will take the first charge on the property.
Who qualifies for a mortgage loan?
Any person with a regular income from salary, existing rent or consultancy income.
What are the key features of our property financing?
- Loan tenure – up to 25 years, subject to retirement,
- Facility fees – 1% of the loan amount (Local currency loans) and 1.5% (Foreign currency loans)
- Minimum Loan amount – Kes 500,000 for plot purchase
- Maximum Loan amount – None, depends on one’s ability to repay
How do you calculate the interest rate on a mortgage?
Interest charged is variable. A variable interest rate is where the interest rate may change, from time to time, based on the prevailing monetary environment.
What are the available Property Finance Loans at NCBA? Or what home loans are available?
- Home loans either to purchase ready built property or Off-plan property
- Construction loans
- Buy and build – this is financing of a plot purchase and subsequent construction of a home on the financed plot.
- Plot loan
How do I know which mortgage I can afford?
This depends on your income and the property you are buying. If you are submitting a mortgage application, your level of debt commitment matter as a prudent lender what we want to see is that you are not highly committed in debt.
When applying for a mortgage, try to clear the small and short term debts. This will demonstrate that you manage your funds responsibly and that you are fit for a long term mortgage commitment, and the more you can save up to put down as a deposit, the lesser the debt obligation that you will have with the Bank.
The Bank will also view you as a more serious customer hence a better credit appraisal score. In regards to your income, we will want to see proof of how much you earn.
You need to produce at least 3 months’ payslips and 6 months’ bank statements if you are employed or the latest 12 months’ statements if you are self-employed or in business. This will allow us to look at how much has been coming in as well as your outgoings.
In reference to the property avoid signing a property sale agreement before you get a loan application approval, signing a property sale agreement can have penalties in case you are not able to honour all the terms and conditions in the agreement.
What are the costs included?
The costs associated with mortgage include: Facility fee, Valuation fees, Stamp Duty, Legal fees and would usually amount to approximately 6-8% of the property selling price.
- Facility Fee – Paid to NCBA at 1% of the loan amount for Local currency loans and 1.5% for Foreign currency Loans
- Stamp Duty for Transfer – Paid to Government of Kenya for transfer of property at 4% or 2% of Property Value
- Stamp Duty for Charge – Paid to Government of Kenya for registration of charge at 0.1% of the loan amount, (applicable for all mortgages)
- Valuation Fees – As advised by the valuer as per the LSK remuneration scale
- Legal Fees – As advised by the advocate as per the LSK remuneration scale
- Mortgage Protection Cover – Annual Fee of 0.575% of the loan amount
- Domestic Package Insurance – Annual fee of 0.125% of the value of property
Thank you, Stella, for answering some of the FAQs related to mortgages. If you have more questions, feel free to ask them in the comment section.