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Buying your first home can be an exciting step. While it marks the beginning of financial freedom, it can also be nerve-wracking. However, house prices are still 4.4 times higher than they were in 2000 despite the decline during Covid-19.

The average price of a one- and two-bedroom home is Sh14.4 million, according to HassConsult, while a four- to six-bedroom home is worth Sh39.1 million.

However, real estate investors can take advantage of the mortgages for cheap home finance.

Mary Ndirangu has been a mortgage and real estate advisor for a leading commercial bank for five years.

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It gives tips and tricks that can help you with your first apartment search and your mortgage application.

What does a mortgage include?

Think of a mortgage as a loan on the property you want to buy with a lender offering you cash upfront.

The borrower then pays for the property using it as collateral. It differs from other loans in that a mortgage is long-term and can last up to 25 years.

Be aware of the perception of mortgage, but don't knock on it.

You are likely to encounter some of the negative perceptions of mortgage products as the process is more complex than a regular loan.

Turnaround time is much longer than other facilities such as B. Personal loans, and people find it a chore. Depending on the property you want, the seller may push you to make payments while your mortgage is still being processed and end up losing to another buyer.

Second, the cost of obtaining a mortgage is higher than other loans due to cost reasons.

Regardless, there are advantages to taking out a mortgage. Nobody wants to pay rent forever. If you calculate how much you spend on rent annually, you might be able to buy a home for the same amount in five years

You are not too young

Everyone should take this initiative as early as possible to buy a home. As long as you have an income, take out a mortgage if you don't have cash on hand.

Ideally, you don't want to struggle with paying a mortgage in old age. You don't have to worry about what can happen in an emergency like we saw during the pandemic that could prevent you from paying back the loan.

You have the opportunity to contact the bank and describe your situation. For example, if your company is affected by the pandemic, the bank will grant you a moratorium (grace period) or agree a lower amount that you can pay until the situation improves. However, this is on a case-by-case basis.

Do extensive research

Carefully choose everything from a real estate agent and the property you are interested in.

Unsurprisingly, most fraud cases involve land and property. When finding the home that you want to buy, use reputable brokers from referrals from other new home buyers.

Go ahead to interview at least a few agents and get references. With due diligence, extend this to the property you have selected. For example, suppose you want to buy an off-plan property where the structure has not been built but is cheaper and you are promised the project will be finished by a certain time.

Don't just take the seller's word for it and pay down payments immediately. Find out if it is real property.

Also, find out about the affordability of the property you want. Think of your long-term needs as you plan to expand your family.

Consider living in apartments that are cheaper but offer less privacy. Then compare the price with the same property on the market.

Don't forget to save on closing costs

Sometimes you take out a mortgage without realizing the additional costs that are not covered. These are the closing costs that are paid out of pocket and are usually three to four percent of the purchase price.

Your lender should give you a specific number upfront so you know exactly what to bring on the graduation day. This includes processing fees, insurance for both the property you are buying and for yourself as a borrower, payments for the appraisal, and legal fees for the attorney making the transfers.

On the bank side, stamp duty is the highest burden on a mortgage.

Go about saving on your closing costs and down payment as intensely as you would if you were building an emergency fund.

Shop at a great price

Don't just take the first offer on the table. A seemingly small difference in mortgage rates can save you millions of shillings over a 25 year mortgage term. The interest rates of the different banking institutions are similar or similar as all banks are regulated by the central bank.

There is a slight difference, however, with the lowest rate being 12.2 percent and the highest being 15.1 percent. Also, find out if the organization you work for has a pact with banks, as the rates on offer are certainly cheaper.

It can be difficult for first-time buyers to negotiate lower rates, but a benefit for customers such as platinum customers or those who have long been banking with an institution expecting better prices.

Your creditworthiness is important

When you apply for a mortgage facility, the bank will look at your Credit Reference Bureau (CRB) report.

You look at your credit history with all banking institutions, the loans you have paid and those you previously defaulted, and whether you have any loans with other banks.

If the income you have cannot service the facilities you have already used, the mortgage process will not proceed. The CRB is continuously updated.

When you repay your defaulted loans, you will be removed from the CRB blacklist.

After the initial default status has been regulated, you can proceed with the mortgage process.

Get your records in order

When identifying the property, the seller should make you an offer to sell that details the amount per unit, payment details, the amount of the deposit and the number of days it will take to clear the balance.

You will then receive a letter of offer and a copy of the rental agreement. At the bank you need to fill out a loan application.

All other documents you will need are your National ID and the Kenya Revenue Authority (KRA) PIN.

If you are employed, you will need your pay slip for the last three months and your bank statements for the last six months.

You can also request a letter from your employer detailing the terms of your employment relationship and your job title.

Regarding closing costs, the bank should prepare an Excel document for you that you should approve and sign to show that you understand everything you need to consider during the process.

Determine how much you can borrow

Your income is what determines the amount the bank pays you. If you have a job, you will need to show your pay slip. If you are in business, offer your audited ledgers.

The bank will then advise you on how much you can get based on your monthly income – taking into account the "rule of thirds" of the cost of living.

The rule is that no more than a third of your gross monthly income should be used for debt payments, including housing.

Once your income is established, a mortgage calculator will be used to calculate your monthly repayments.

Avoid mortgage brokers

A few years ago banks were open to agents. The agents would connect borrowers to a bank for access to the mortgage facility. This led to fraud as people used fake pay slips and other documents.

Since then, banks have stopped accepting facilities from brokers or agents. It is advisable to contact a bank mortgage department directly for direct advice.

Expect some trouble before you close

Be on your toes in the mortgage process. Keep track of the process as it can be slow at times, especially if it goes to lawyers.

Follow up to know what's going on when you need to sign documents or make payments.

It can take months for part of the process to complete. For example, if you don't have legal fees, you may have to wait to receive them in order for the rest of the process to proceed.

After all, you don't pay the down payment until your loan has been approved. Let the seller know that you are working on your financing.

Go to the bank and apply for your mortgage. Once it's approved and a letter of offer has been received, you can pay the deposit.

Do not start the buying process as sometimes you will not be refunded the full amount if your loan is declined.

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source https://seapointrealtors.com/2021/08/11/mortgage-dos-and-donts-for-first-time-home-buyers/

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