APPLYING FOR A HOME LOAN
A high proportion of the Kenyan population consists of the low and middle income class. The growth and trend are expected to continue increasingly, particularly in the middle income class, which can be attributed to improved economic conditions and hence the increased demand for residential housing.
Over the last seven years, as a result of new job opportunities and improved economic activities, a substantial proportion of Kenyans have joined the middle income class. The number of middle class Kenyans increased from 1.5 million as at 2002, to 3.9 million by the end of 2009. It is estimated that a total of 4.3 million housing units will be produced between 2008 and 2030 and of these, 2.2 million units representing 52 percent of the total will now cater to / target low income urban households.
After weeks of trawling through the newspapers, magazines, flyers, billboards, and dealing with estate agents and several inspections and viewings you spot your dream home. At the end of the meandering road not too far from the Naivas and one of your local joints, there you see the apartment that you have finally decided to make your home.
You know how much you can afford, but what does the bank think? It may be willing to lend you an amount that could get you into trouble financially; on the other hand, it may not be willing to lend you as much as you would like. Once you’ve narrowed the lender field to a short list of finalists, it’s time to compare the offers.
Below are some key questions you should ask while making that proverbial application to help in finding the best overall loan for you. If you have already selected a lender and are ready to apply, make sure you have the answers to these questions first.
- Do I qualify to borrow?
Any Kenyan is eligible, however, in assessing your ability to repay the loan, a Bank will research and require inter alia the following documents:-
- Identification – ID/Passport and PIN. Age is a key factor in determining the tenure of the loan. Generally, the applicant will need to demonstrate that the loan should be able to be fully repaid prior to the applicant’s 60th
- Pay Slips – 6 months worth of pay slips if you are relying on salary as the major basis of valuation. If the Property is being bought jointly by you and your spouse, the same documents will be required for the both of you and the assessment will be based on the combined income.
- Letter from employer/employment contract– This confirms your employment and the ability to repay based on your salary;
- Bank statements –for the last 12 months;
- Any other asset information;
- Credit history
To sum up, the loan amount, the tenure of loan, loan to income/value ratio, repayment capacity, your creditworthiness, current age and retirement age is assessed by the Bank using the documents listed above.
- What is the interest rate including all hidden charges?
Interest is the fee paid for borrowing money. To determine exactly what you’ll pay over the term of the loan, you need to know the rate. To calculate the rate of interest,which is usually on a reducing balance method, you need three pieces of information:
- The principal – the original amount of money borrowed.
- The interest rate – the percentage of the principle that must be paid per time period to compensate the lender.
- Time Period (Tenure) – the length of time the money will be borrowed for, expressed as a number of time periods, generally years or months.
- Not all Banks will finance 100% of the purchase price, however, this may vary from Bank to Bank. Therefore, bear in mind that some loans will require you to pay your own deposit on the home, stamp duty, valuation and legal fees.
- In calculating the rate of interest, there are additional costs over and above this payable to the Bank, so it is important to get a breakdown of costs, which include the appraisal fees and commitment fees.
- Most Banks will require their customers to procure a Valuation Report of the Property, and subject to the security cover being provided, a Mortgage Protection Insurance and House Owner Comprehensive Insurance.
- Is there a penalty on prepayment/ delayed installment payment of my loan amount?
This can be negotiated on both fronts, but for delayed payments, generally a rate of 10% per annum is charged over the base lending rate from the date of such failure to the date of actual payment. These rates need to be factored in to your assessment on the repayment of your loan.
- How long will it take before I get my loan approved and when will the loan amount be disbursed?
If you provide the lender with complete and accurate information, the loan approval process should run smoothly and take roughly 2 weeks, provided you qualify. Make sure you notify your lender if you change jobs, there’s an increase or decrease your salary, you incur additional debt or change marital status between the time you submit an application and the time the loan is disbursed.
Final approval process
Generally, once the Agreement for Sale for the Property is signed by you and the Vendor, the same is forwarded to the Bank together with your application form and subject to the Bank’s risk assessment and due diligence on yourself and the Property. A Letter of Offer from the Bank is then provided to you highlighting the Bank’s terms and conditions on the loan approval for you to sign and return together with the hidden charges highlighted in 2 above.
Noteworthy terms highlighted in a Letter of Offer include, inter alia:
- Loan amount and purpose;
- Interest rate, repayment period and method;
- Any bank charges applicable;
- Security cover to be provided;
- Disbursement pre-requisites,
- Default provisions.
At this stage, the Bank’s external lawyers are advised to draw up the necessary charge documents over the Property and the registration process of both the Transfer and Charge over the title usually takes around two months. If all legal papers are successfully registered and the Bank’s interest over the property secured and registered and all terms and conditions of the Bank’s Letter of Offer adhered to, the loan will then be disbursed as per the terms of the Sale Agreement.
Buying your dream home can be exciting and rewarding. Being prepared as an educated home buyer before you start looking will definitely help you avoid any unexpected (and sometimes unpleasant!) surprises and be up to date on market trends and lending rates. Be sure to ask the right questions when applying for a loan and you will soon reap the benefits and pride of owning your own home.