Acquiring a home with aid from a financial institution!

 

By Paul Mugabi
Posted  Thursday, April 28 2011 at 00:00

In Summary

You can buy or build a house with your own available savings, should they be sufficient for an outright purchase or home construction, writes Paul Mugabi

Freedom, security and peace of mind are some of the many benefits that owning a home brings to many people’s lives. Home ownership generates a greater sense of belonging to the community and sometimes leads to involvement into other social activities, in order to create better surroundings, something which people who rent seldom bother with.

A home owner will also not worry about the necessity of changing their children’s schools that is inevitable with the change in residential location and the parents have the benefit of stability as they plan for the future.

Home owners are in better control of their immediate surroundings. They are able to change things and decorate their homes to individual taste, rather than seek someone else’s approval for remodelling or alterations.

Acquiring a home
Depending on the financial muscle of the prospective home owner, one can finance home acquisition with one’s available savings, should they be sufficient for an outright purchase or home construction.

One can also borrow from a financial institution that offers packages the developer will be comfortable with. These are called mortgages in the housing finance industry.

Ms Damalie Kairumba, the Home Loans Manager at Stanbic bank, advises that, “A loan facility is available to individuals and other entities interested in the development or acquisition of residential property. It may be advanced for building, completion of a stalled residential structure, renovation or improvement of the property.”

She says to be credit-worthy, it is essential that the applicant, whether they are individuals or corporate bodies, have “sustainable monthly incomes which are sufficient to repay the loan within a specified term.” All home loans have a maximum period of 20 years, as long as the home owner expects to be 65 years or less by the time the loan period ends.

Kairumba also talks of an option that enables one to access funding by using their existing property (without selling it) as a security. Currently, Stanbic lends 70 per cent of the market value of that property to the developer, courtesy of this facility, with a repayment period of 20 years, which is called the equity release.

The essence is to enable the client to use the borrowing for investment in other ventures or activities such as the building of more houses, purchase of land or even starting up a new business.

To qualify, an applicant would need to have impeccable personal identification, passport photos, and finance card, a copy of the land title, valuation report and proof of income. For completion/renovation financing, one needs to have approved building plans and provide the cost estimates of a building derived from measurements in the architect’s drawings in regard to the square area in metres of walls and roofs, the numbers of doors and windows, and systems (heating, plumbing and electrics).

The affordability of the mortgage is as important to the lender as it is to the borrower, hence Kairumba advises that, “To be certain that your mortgage is affordable, the amount you may borrow must have a monthly repayment amount that does not exceed 35 per cent of their ascertainable monthly net income.”

Many formal financial institutions have positioned themselves to do business with a great majority of people with steady incomes who are desirous of owning their homes. Housing Finance Bank offers home construction and country home construction mortgages for home development.

This bank also insists it will accommodate borrowers with ascertainable and sustainable monthly incomes sufficient to repay the loan within a specified term. Like Stanbic, they finance up to 70 per cent of the appraised market value and the maximum repayment term is 20 years with an interest rate that varies with the prevailing market conditions.

Because property (houses) market is low in most parts of rural Uganda, developers may not have titles to the property and the structure may not have been professionally designed. However, this bank will accept a structure in the urban setting as security when a developer borrows to develop their rural home.

Borrowers will be required to present the valuation report of the security, detailing the estimated value derived from measurements in the architect’s drawings in regard to the square area in metres of walls and roofs and the numbers and quality of doors and windows. It is 70 per cent of this market value that is released to fund the development of the rural home.

Developers funded by Housing Finance Bank must prove that the repayment does not exceed 35 per cent of their income per month.

Mr David Ninyikiriza, Housing Finance General Manager for Mortgage and Term Finance, adds that all concerned properties are insured against all conceivable damage or destruction. This is in addition to a mortgage protection insurance the developer is advised to take that would be useful in the event of their death before repayment is complete. If the property is in an urban setting, its rental value is used to offset the loan.

Mr Ninyikiriza however argues, “Most people in Uganda rely on social insurance in that their relatives ensure the loan is offset and the family retains the property. We have not had many cases where developers fail to complete the repayment of their mortgages. In the rare case of selling off the property, the owners keep the difference between the sale price and what had not been paid.”

People with steady incomes have another home development option in what Ninyikiriza calls the “growing house mortgage”. They may borrow to be able to build in phases, for instance starting with a bedroom, kitchen and bathroom.

This finance facility is for a shorter period of about four years on the basis of an expandable house design. After repayment for this phase, you borrow again to add other facilities until you complete your ideal house.

Defaults are not a threat as people largely value their investment, which are in any case all the while ever appreciating, hence they prefer to meet their loan obligations and keep the property.

Housing Finance Bank can also arrange for a loan for acquiring a plot of land, which is repayable in five years.