Shelter is a basic necessity and one of the three most important basic needs of man. In fact, people who can afford this basic necessity in Kenya are few. Financing being the hindrance. In search of ways to assist in finance of home and property, financial institutions have designed mortgages to enhance adequate housing delivery. Thus, owning a property through mortgage arrangement.
In addition, a mortgage loan in Kenya is the best form of loan to owning a property or a home. If you are looking to purchase a property or a home through mortgage, this article is for you. Follow through and learn all you need to know about mortgage in Kenya.
What is a mortgage?
A mortgage is a loan gotten from financial institutions for purchase of a property or a home. Once the loan has been approved and the property owner settled, the borrower takes the ownership of the property. The bank takes the title of the property until the borrower fully makes the mortgage repayments. See it in the actual sense that the borrower uses the property as a collateral.
Types of mortgages in Kenya
In Kenya there are two types of mortgages, they are:
- Fixed-rate mortgage and
- Adjustable rate mortgage
In this type of mortgage, the interest rate is fixed till the whole repayments are done. It is more expensive because the amount remains the same during the lifetime of the loan
Adjustable rate mortgage
The interest rate in this type of mortgage keeps changing depending on the market structure. The loan repayment keeps reducing. It is the most common type of mortgage operated in Kenya. The reason for the changes in the interest rate is because they transfer the part of the risk of the loan to the borrower.
Processes of getting a mortgage loan
The processes for getting mortgage loans includes:
- Appraisal and approval. Knowing if you qualify for the mortgage loan.
- Property search and viewing.
- Loan processing and provision of required documents needed.
- Offer/issuance of offer letter.
- Perfection of instruction and acquisition of property used as collateral
- Making payments to the seller of the property by the lender.
Also check out how to apply for mortgage loans in Kenya
General Documents required for mortgage loans in Kenya
There are general documents required for mortgage loans in Kenya and they include:
- Copy of the title, which has a minimum free lease duration of 45years.
- Offer letter from the seller for outright purchases
- Standing order proving direct debit or employer’s irrevocable check-out letter
- For spouse applying together, provision of a copy of marriage certificate
- Valuation reports which often attract a valuation fee
- Evidence of rents and rates. That is receipts showing latest payment to the city council
- Life insurance quotation and medical checkup for application above 20m
- Rental assessment report for landlords using rental income for mortgage.
Parameters used in scoring approval of mortgage loans in Kenya
There are certain factors that would be checked thoroughly before they can approve your mortgage loan application. They include:
- Total income
- Sum amount of your personal expenses
- Credit score
- Whether you possess a solid source of income
- The duration of the contract
- Details of the property
- Age of the borrower
Some mortgage providers in Kenya and their interest rates
Lists of mortgage providers in Kenya range from:
- Housing finance group: They have a mortgage interest rate of 13%
- Standard Chartered Bank Kenya with an interest rate of 12.2%
- Consolidated bank has 15.1% as their mortgage interest rate
- Barclays bank Kenya- 14.4%
- Kenya commercial bank – 13.3%
- Citibank Kenya – 12.5%
- Co-operative bank – 14.9%
Check out other related articles to help you in your loan search
Charges associated with mortgage loans
Before you get the full acquisition of the property, there are other charges within mortgage loans that you need to pay. They are:
- The main mortgage interest rate
- Negotiation fee, which is often 2.5%
- Stamp duty
- Commitment fees
- Legal fees
- Valuation fees
- Ledger fee which is charged on a monthly basis.
Mortgage loans have advantages ranging from living in your dream house to rendering a full potential for profit making when house prices rise. Financial institutions have made it easy for all who qualify to gain homes through mortgage. We believe you have learnt all it takes. Qualify and get your papers ready. That dream house would be yours.