What is a Home Loan and How do I Apply for One? 

Home Loan is an interesting concept to discuss. So, are you planning to buy your dream house someday? You’ve always envisioned it, haven’t you? A time will come, you tell yourself. A time when you will finally make payment for a house in Maitama, and you’ll be living your best life. 

However, recently, you began to wonder why the time was not coming fast enough. You’ve tried saving the best you can, but you still need to make more money. And with inflation, you are certain that the prices of houses, especially those in high-demand areas like Maitama, will soon go up. 

What if you could speed up the process? What if you could purchase the house now, and pay in installments? Enter home loans. For the next few minutes in this article, we are going to cover the concept of home loans, their application in Nigeria, and how to secure your first home loan. So let’s start the journey to getting that dream house. 

Also read: Top 10 Online Banking Apps in Nigeria 2024

What is a Home Loan?

A home loan or home mortgage, is one taken to settle the purchase of a property. It is a secured loan in which the estate to be purchased is offered as collateral to the creditor (the mortgagee). The borrower (the mortgagor) transfers the title of the property to the mortgagee.

The property in this case, thus serves as security for the debt advanced. The title will be transferred back to the mortgagee once the loan debt has been cleared, with or without interest, as may be stipulated in the mortgage terms. 

The major laws that guide a home mortgage transaction in Nigeria are:

• The Conveyancing Act, 1881
• The Property and Conveyancing Act, 1859
• The Property and conveyance Laws of various states
• The Mortgage and Property Law of Lagos State, 2010

Where the terms of your mortgage agreement seem a bit awry, you may refer to any of these laws to understand the legality of such terms, in order to avoid being taken advantage of. 

What are the Pros and Cons of Taking a Home Loan? 

Are you contemplating whether or not to go for a home loan? We understand, it can be quite a tricky decision to make. Here are some advantages and disadvantages to guide your decision: 

S/N	Pros	Cons
1.	You don’t have to worry about how, or where to source money for your dream house; home loans cover the entire cost	The mortgagee usually charges interest on the principal sum. Both parties or the mortgagee may decide on this interest rate.
2.	Repayment of the loan is made in equal Monthly installments, creating a convenient repayment plan	Paying off a debt every month might drastically reduce your income and the items or services that you can purchase per month
3.	There are no restrictions on what kind of property you can purchase or on its location; as long as you love it	Since the title to the property remains with the mortgagor until you have fully repaid your loan, the property technically doesn’t fully belong to you yet
4.	You don’t need a different property or any other form of collateral to secure your loan; the property you intend to buy is what is, most times, used as collateral	If you fail to repay the loan, the mortgagee has a legal right to foreclose the home, i.e. seize and sell.

Also read: Best Loan Apps with Low Interest Rate in Nigeria

How to Apply for a Home Loan in Nigeria 

The application process for a home loan in Nigeria or anywhere else is highly technical. You have to be ready to provide the necessary documents, sign contracts, review the terms of engagement, as well as other processes.

We would advise you hire a lawyer through the process, as they would better understand the technical clauses and terms contained in the contract. They are also adept in striking agreements with the mortgagee that are in your favour. 

We have created a step-by-step guide on how to apply for a home loan: 

Step 1: Prepare Your Documents 

The application for a Home Loan requires a lot of paperwork, as security is to be provided. Hence, we advise that you thoroughly prepare all your documents before you forge ahead with the application, as this will enable a swift application. Having the appropriate documentation also guarantees approval of your loan. 

The home loan requirements vary based on your service provider. However, here are the general requirements that most providers would request: 

• An offer letter from the current owner or developer of the property you want to purchase. Some banks may also request copies of the building plan.
• A bank statement detailing your transactions over the past 6 months. Some banks may request that it date as far back as 12 months. 
• A copy of your employment letter and your office identification card, and an introduction letter from your boss. 
• A letter granting irrevocable access to your salary account until the loan has been fully repaid. 
• Copies of title documents of the property, with ownership in the seller’s name.
• A copy of your birth certificate. An affidavit may be used in lieu of this.
• A filled Home Loan Application form, usually available for download on the service provider’s website, or in a branch office.

Note that a defective land title cannot be used to access a home loan from any bank. Thus, the property you wish to purchase must have a good and verifiable root of title. This is another reason you need a lawyer through this process.

It’s easy to fall into the snare of scam property sellers. A lawyer will detect these loopholes by conducting a search at the land registry and perusing the title documents, among other things. 

Step 2 : Prepare Your Equity 

Equity contribution means the amount, from the total property cost of the property, that you can afford on the spot. Mortgage institutions in Nigeria usually require that you contribute at least 20-50% of the property’s value.

The risk assessment taken by the lending institution will determine the percentage of equity contribution you are expected to make.  

So before you start your application, determine whether you can afford between 20 and 50% of the amount your property is priced at. If you can’t, you may want to consider taking a loan from a bank that caters to this.

Infinity Trust Mortgage Bank, for instance, has launched Infinity Save and Own a Home, two initiatives that help customers who do not have the required equity contribution, to save up. 

You should also consider other expenses arising from the loan application process, such as administrative charges, legal costs, and the sum that will be deducted from your monthly income for the repayment. Can you afford the total sum, without too much strain on your finances? If so, get them prepared so you can make use of it as and when due. 

Step 3: Hire a Lawyer

As we have advised even before getting to this point, hiring a lawyer is crucial to the home loan application process. From scrutinising the Deed of Mortgage to helping secure a property with a good root of title, the role of a lawyer cannot be overemphasised in this process. 

Step 4: Start the Paperwork 

Your next step is to visit your preferred mortgage bank branch. There, you will be told all that you need to secure a home loan. As we earlier mentioned, the necessities vary, depending on the bank in question. 

Where Can I Apply for a Home Loan in Nigeria?

There are banks in Nigeria whose sole purpose is to grant mortgages to Nigerians. They are known as Primary Mortgage Banks, some of which include: 

• Aso Savings and Loans Plc.
• Union Home Savings and Loans Plc.
• Infinity Trust Mortgage Bank 

Commercial banks also deal with home loans, albeit at high-interest rates. Some of the commercial banks in Nigeria that you may approach for a home loan are: 

• First Bank of Nigeria 
• Standard Chartered Bank
• Union Bank of Nigeria 
• United Bank of Africa 
• Stanbic IBTC Bank 
• Access Bank 

If you don’t have an existing account with the commercial bank from which you want to take a loan, they will demand that you create one. Below are the documents you need to open an account with most commercial banks in Nigeria:

• A nationally recognised means of identification such as your International Passport, Driver’s license, National Identity Number/Card, etc. 
• Proof of residential address. For this, you can use your electricity or water bill.
• Passport photographs (2).

Also read: 8 Illegal Digital Loan Companies in Nigeria You Should Avoid 2024

Frequently Asked Questions 

Is it Possible to Get a Home Loan Without Collateral?

No. Home loans are always secured. This means you must provide some form of collateral as security before the loan can be advanced. In most cases, this security is the title of the property to be purchased.  

What is the Difference Between a Fixed Interest Rate and a Floating Interest Rate? 

A fixed interest rate, as the name implies, remains fixed for the entire repayment period. The mortgagor and the mortgagee agree on a certain sum to be paid on the principal sum, and nothing changes. A floating interest rate, on the other hand, adjusts with the rate of inflation.

How Do I Determine the Total Interest on my Home Loan?

You can use a home loan calculator to estimate the total interest you will pay on your principal loan and your monthly amortization. Most Primary Mortgage Banks in Nigeria have this calculator on their websites. 

Can I Pay Off My Home Loan Before the End of the Repayment Period?

Certainly! You can, however, it does not attract any advantage nor disadvantage. 

Ready to Own Your Dream Home? 

Owning your dream home takes time and thorough planning, whether you’re taking a home loan or financing the purchase from your savings. You have to do a lot of market research and obtain advice from lawyers and financial experts before you make the final decision. 

The good news is that with a home loan, you are one step closer to that dream. No matter how tedious the process may be, it’s a path to your dreams and you’ve got to take it. 

Ready for more expert tips on your journey to owning your home? We’ve got you covered. 

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