Before you venture in buying you need to be informed on financing. Most of us cannot afford a house with just our savings. Hence, we become borrowers. As a borrower, are you aware of the mortgage procedures?
Unfortunately, we find clients ignoring the procedures assuming their lenders will automatically give them the loan. However, you need to be aware of the complications that can occur if you skip any mortgage step.
What is a mortgage?
A mortgage is a legally binding contract used by lenders to lend you money on interest to help purchase a property. The mortgage agreement gives your lender the right to take ownership of your property. In the event that you fail to repay the money plus interest.
In ordinary terms, this means that your bank will only lend you if you give them a title to the property.
Did you know you can get a mortgage in exchange of title to the vacant land? The answer is YES!
For those who don’t understand the process of getting a mortgage, here are the steps you will go through to get a home loan. Moreover, the process cannot be avoided. You’ll have to be patient through the process because it isn’t a one-day thing.
1.Approval
Firstly you make an application. The application is considered based on your score on certain parameters such as length of the contract, amount of personal expenses, documentation of property to be used as collateral, age, credit score among others. At this stage, the application is approved or rejected.
Once you have been approved, you can search for a house that fits your budget. Or rather incorporate the assistance of an agency such as Kenya Homes. You’ll get to view the listings and find a home for you. This shall lead to acquiring a sale agreement offer letter which proceeds to the next stop.
2.Processing
Secondly, once your application is approved, the next stage is processing. This stage involves providing the bank with the required documentation and details.
Such documentation and details include your identification documents, spousal consent, sale agreement/ or offer letter (if it is for purchase of property), valuation report.
3.Offer
Third, successful processing will end with an offer being issued to you The offer letter stipulates the terms and conditions of the mortgage. Noteworthy is you will be required to accept the offer terms in order for your lender to proceed to ‘perfecting’ the mortgage.
what is a perfected mortgage?
Borrowing money to buy real estate typically requires the borrower to get a mortgage loan from a lender. In return, the lender receives a signed mortgage trust deed. The mortgage becomes “perfected” when the lender files documentation with the proper county legal authority where the property is located. The documentation serves as a public declaration of the lender’s “secured lien” against the real estate.
Noteworthy is that they lender may need you to deposit an amount to secure the mortgage. This amount ranges from 10% to 30% depending with your mortgage plan.
4.Perfection of the mortgage
Once you accept the terms contained in the offer letter, the lender moves to the perfection of the mortgage. Where you are purchasing the property to be used as collateral; your lender provides an undertaking to the seller of the property for the release of the original certificate of title, transfers, and other relevant documents.
With the title and other registration material now in the custody of your lender, they then register a charge (a means by which lenders enforce their rights to the property) against the title for the sum borrowed.
Moreover, it’s advisable to push your lawyers to look over the documents ensuring all is okay. Including having the valuer and insurer go over the property to guarantee everything checks out.
5.Payment
Upon successful registration of a charge on the title, your lender pays the sum borrowed either to you or to the seller of the property depending on the nature of the transaction. This whole process can take anywhere between 90 to 180 days. The process will largely depend on you as the borrower in terms of providing the necessary documentation and the speed of the registration at the lands department.
As consultants, we have observed that most borrowers are not prepared accordingly when approaching a mortgage process. We advise you to educate yourself on the process to avoid unnecessary back and forths during the processing stage.
If you are curious, you can use our mortgage calculator to see where you can begin.
See Also: Private Lender Loan vs Mortgage Loan
