As a potential home buyer looking for financing, learning all about lenders and what they offer in regards to a mortgage. Most middle-class home buyers look into SACCOs loans. In addition, they are different from bank loans. In regards to rates and payment.
Moreover, SACCO loans DO NOT have hidden charges but some Bank loans have A LOT OF HIDDEN CHARGES besides monthly charges. Some of these charges include:
- Insurance fee.
- Appraisal/ Processing Fee
- Account Maintenance Commission
- Accrued Interest Charges (Arrears Account)
- Late Remittance charges
- Premature Loan Clearance charges.
NOTE: Banks have yearly reappraisals to determine interests to charge. This implies that the interest rates will vary within the lifespan of the loan. As and when interests in the money market change (upwards), the interests on running loans are also adjusted (upwards) without giving notice to the loanee.
How to qualify For A Sacco Loan
- Must have contributed a minimum of Ksh.6000 for three months.
- Must be guaranteed by two or more members whose shares and those of the loanees must be equal to the loan applied.
- Loan applied must be three (3) times the members’ savings.
- Interest chargeable shall be 1.2% on reducing the balance.
- Must attach two current payslips.
- (1/3 salary rule shall apply to all loans.
- (More details are on the Loan Form)
Which is the best SACCO to join if you want to save for a home?
This question many Kenyans wonder upon. The reason why this is asked about a SACCO and not an investment product is because most want to access credit against savings (which would then go towards the building).
First of all, the government has some tax incentives for individuals who want to build their first homes. The first incentive is on the savings you make. The taxman will allow you to deduct up to KES 4,000 of your savings from your taxable income, so long as the contribution is to:
- A bank or financial institution registered under the Banking Act
- Insurance Company registered under the Insurance Act
- Building society registered under the Building Societies Act
The above benefit is valid for a period of 10 years, meaning you can keep saving for up to 10 years. In addition, interest earned on the savings will be tax-free, as long as it is not more than KES 300,000 per annum. KES 48,000 per year does not amount to much, but if you are looking to maximize your tax advantage, this can be a starting point to saving for a home. Look out for the return rates on these products though, some are so low, that the tax break may not be worth it.
If you want to access a loan for construction, a regular SACCO is one way to go about it, but most SACCOs limit the borrowing to 3 times your savings and for a maximum of 60 months (5 years), and they require guarantors for you to borrow. A commercial bank may also be willing to lend you money to build a home, but you have to qualify for the loan by demonstrating strong cashflows. With the Interest Cap Law coming into place, many banks have become very shy about personal loans.
A third option is to join a housing fund.
KUSCCO, the umbrella body of all SACCOs has a unique real estate financing product; the KUSCCO Housing Fund. It allows members of SACCOs to borrow against their shares (on referral by their SACCOs), and also allows individuals to open accounts with KUSCCO and build savings against which they can borrow. Their basic terms are as follows
- Applicants must have continuously saved for at least 6 months with the KUSCCO Housing Fund;
- The fund will advance loans up to 5 times the amount of applicants’ savings at the time of application;
- The fund will advance up to Ksh 7 million and a minimum of Ksh 450,000;
- Loans are repayable for up to a period of 15 years;
- The loan is secured against the title deed or property that is being constructed.
They offer to finance for both residential and commercial developments, and unlike regular SACCOs, you do not need guarantors to access capital. you can actually register with KHF directly. They quashed the requirement to be a member of a SACCO first.
In conclusion, you can get a home loan from a SACCO.