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Begin with these Frequently Asked Questions
Owning a home is probably the biggest investment decision or purchase one can make in one’s lifetime so it is important that one exercises absolute due diligence when embarking on the home ownership process. Key factors to consider before buying a home include:
- Knowing the type of home you wish to buy;
- Location (where do I want to live?);
- Affordability vis a vis your income level (what can I afford?);
- Financing (how do I finance this major purchase?)
You might need to procure the services of an experienced realtor to put you through the maze of offerings available in the market – one, two or three bedrooms apartments; semi-detached, terrace duplexes, bungalows, duplexes or detached homes.
Probably the most important decision is to determine what you can afford. Knowing what house type you can pay for or receive funding towards will also help you narrow the field so you don’t waste precious time touring homes that are out of your reach.
Check out the prices of the homes under your consideration. Negotiate hard to arrive at a comfortable sale compromise with the seller. Make sure the home has all the necessary title documentation. Once you have settled on a price, you can contact one of NMRC’s primary mortgage lenders for a mortgage. For a full list of these institutions and to access the Uniform Underwriting Standards (UUS) which set out the conditions for borrowing, visit the NMRC website at www.nmrc.com.ng.
Research and read up all you can about how to get a mortgage so that you are well equipped to speak with the lender. You can even use a mortgage calculator to figure out what you can afford. The lender is to help you determine just how much you can comfortably afford or pay with or without a mortgage loan.
The key factor in figuring a home you can afford is your debt-to-income ratio. This is the figure lenders use to determine just how much mortgage debt you can handle and the maximum loan amount you will be offered. The law stipulates that your monthly mortgage outlay must not be more than 33 and one-third percent of your monthly income.
There are pros and cons to each of the two options. Buying a completed property already listed on the market allows for quicker purchase decision and indeed mortgage decision. It also allows for your immediate occupation of the home once the mortgage negotiations have been finalised. The downside is that you are often forced to pay the full price of completion and you may not be able to upgrade with the finishes you prefer.
Buying off-plan on the other hand, or simply buying a home before the construction starts presents an opportunity to buy cheaper with options as regards payment and even home finishes. This option as attractive as it appears also comes with its drawbacks as off-plan purchase schemes have been abused by unqualified developers.
The key to engaging in such schemes is to review the background of the developers/promoters for track record and qualitative experience before subscribing to an off-plan scheme. As the saying goes, “if an offer is too good to be true it probably is”.
Þ Start your research early
Þ Determine your preferred location
Þ Determine the price you can afford for a house
Þ Get pre-qualified (reviewed by a mortgage broker or lender)
Þ Find the Right Real Estate agent or Developer
Þ Shop for your home, negotiate and put in an offer
Þ Once the seller accepts your offer, get the home inspected
Þ Make sure you have the legal documents to the home – title.
Þ Identify any NMRC mortgage bank and apply for a mortgage loan
Þ Work with the mortgage banker to formalize your loan
Þ Agree interest rates, tenor, amortisation schedule, etc.
Þ Coordinate the paperwork (execute purchase agreements)
You make the required equity down payment, normally set at 20% of the cost of the property. If you cannot do so there are emerging options available to enable you make the down payment, such as Collateral Replacement, Indemnity, Insurance or CRI, or you can also access a percentage of your Retirement Savings Account (RSA) with PENCOM (subject to meeting eligibility requirements) to enable you make the down payment.
Once your application for the mortgage loan is approved and your equity payment is made you will have to begin making repayments on the loan. This will be via monthly deductions from your source of regular income.
In the event of partial or default payment, the mortgage lender can foreclose the property. This means that if you are unable to make the payments for 3 or 4 consecutive months the lender has the right to take back the property and sell it to cover the debt (this is the process known as foreclosure).
With foreclosure you lose your home and likely damage your credit worthiness or affect your ability to buy a new home in the future.
Þ Mortgage: Mortgage is a loan secured on a specified property that the borrower is obliged to pay back with a predetermined set of monthly payments.
Þ Title: The right to ownership and possession of a property that may be legally recognized as belonging to someone.
Þ Down payment: The minimum cash contribution that must be made by a borrower toward the purchase of a home to qualify for a mortgage.
Þ Credit Check or Rating: A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Þ Interest Rate: The amount charged, expressed as a percentage of principal, by a lender to a borrower for a loan facility.
Þ Foreclosure: The legal proceedings initiated by a lender in the case of mortgage default to realize or claim ownership to a collateral or property.
Þ Appreciation: the rise or increase in the value of an asset based on a rise in market price over a period.
Þ Depreciation: A decrease in property or an asset's value caused by unfavorable market conditions.
Þ Default: The failure to promptly pay interest or principal when due. This occurs when a debtor is unable to meet the legal obligation of debt repayment.
Þ Deed: A legal document that grants or conveys ownership of property from a grantor (seller) to a grantee (buyer).
Þ Home Equity: The value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage or liability.
Þ Appraisal: A valuation of property by the estimate of an authorized person.
Þ Amortization: Amortization is paying off debt with a fixed repayment schedule in regular installments over a period, for example as with a mortgage loan.
Þ Disclosure: Disclosure is the act of releasing all relevant information pertaining to a company that may influence an investment decision.
Þ Adjustable Rate Mortgage (ARM): A type of home loan in which the interest rate is not fixed but adjusts in line with market rates.
Þ Fixed Rate Mortgage (FRM): A mortgage that has a fixed interest rate for the entire term of the loan.