A Step-by-Step Guide on how to get a mortgage in Kenya

For first-timers, navigating the mortgage process can be a tad overwhelming. It can take over 2-5 months with many meetings with your lender. While it’s not the most complex homeownership route, understanding how it works can help you streamline the process, save time, and get the best deal.

But before you start the process, you need to have enough money to cover the down payment, mortgage application fees, real estate agent costs, and insurance. If you haven’t saved enough money to cover this, you might have to liquidate some investments or start saving and investing for this goal.

Follow these seven steps when applying for a mortgage in Kenya.

Step 1: Get an Appraisal 

Before you can hit the ground and start searching for a house to buy, you first need to approach your lender and determine how much mortgage loan you qualify for. The lender will consider different factors like income, age, stability, assets, and credit history to decide how much to offer you.

You can approach different lenders who will all run a background check on you and offer feedback about how much loan you can get. You can compare each package you receive and settle on the ones that suit you. Once you find a property, you can approach the lender you choose at this stage.

You should, however, keep in mind that the amount you are approved for at this stage is a rough estimate of what the lender will offer you, and it might differ from the amount you will eventually be offered after your mortgage is processed. This offer has an expiry date and is valid for a short period.

Step 2: Find a House 

Once you have a rough idea of how much mortgage you can qualify for, the next step is finding a house to buy. Here, you’ll have different options. You can choose to buy a ready-built house, an off-plan property, or take the rent-to-own route. Whichever path you take, ensure the seller accepts mortgage payment.

You can search for property on your own by looking at real estate listings, or you can retain an agent or lawyer to hold your hand to save time and avoid any risk.

Once you’ve found your house, you’ll negotiate the buying price with the seller. You might also be required to put a refundable 10% deposit in an escrow account to show your commitment to buying the house. The seller will then take the property off the market.

Step 3: Submit your Application 

At this stage, you will make your formal application to all the lenders who have approved and given you an offer. You will provide them with all your financial documents, such as payslips, bank statements, credit history, and other supporting documents that increase your chances of receiving a mortgage.

It’s important that you don’t lie about anything at this stage – or any stage for that matter. If your lender notices any inconsistencies, your application might be thrown out.

Step 4: Receive Mortgage Approval 

Your lender will take time to review all the documents you provided in the previous step and perform their due diligence. They will assess your income, debt, and creditworthiness and decide how much they can loan you.

As a rule of thumb, most lenders will only offer you a mortgage you can repay without spending more than 50% of your monthly income servicing debts.

Your financier will also look at the house you intend to buy and perform their own property valuation, inspection, and feasibility study before they can offer you a loan. You might need to get them in touch with the seller.

If the lender approves your application, they will give you an official offer which you can negotiate until you agree. If the offer is too expensive and doesn’t suit you, you can walk away and find a different lender.

If you had made multiple applications to different lenders as suggested in Stage 3, make sure to evaluate the most suitable for your financial situation.

Step 5: Accept Your Mortgage Loan 

If everything ticks, the lender will approve your mortgage and provide all the terms and conditions you must accept to move forward. The terms will contain the repayment term you’ll be put on, the interest you will pay, and the consequences if you default.

Ensure you only accept a mortgage loan you are sure you can service. Defaulting might cause you severe financial losses.

Take all the time you need to evaluate the terms and conditions. It is very important that you consider your future income potential. This evaluation is typically easier for permanent and pensionable employees who have an almost 100% guarantee of a steady income for the loan tenure.

If you are not in this category, you need to seriously do a forecast of what your probability of continuing to earn an income will be and in what numbers in the future to ensure your homeownership is future-proofed.

Step 6: Buy your House 

With your finances ready, you can return to the seller and complete the property acquisition. Depending on your lender, they might handle the payment and transfer the money to the seller or give you the money to complete the purchase.

You will then embark on finishing up the legal paperwork. The house title and document’s name will be transferred to the bank, which will hold it as collateral (joint ownership) until you pay back your mortgage.

Step 7: Move into your New House. 

Congratulations, you are now a new homeowner! Once you finish the stressful and overwhelming process, you can move into your new house and say goodbye to paying rent.

The Pros and Cons of Mortgages in Kenya

Advantages 

1. An easier route to homeownership as less money is required to get started
2. Allows you to build equity as the money you pay in monthly instalments replacing rent contributes towards homeownership
3. Allows you to diversify your investment portfolio and avoid the ‘dead capital’ trap as less money is tied in the property
4. Tax relief of up to Ksh300,000 annually on the interest you pay

Disadvantages 

1. Increasing interest rates will have you pay way more than you borrowed if the interest structure is variable.
2. Risk of losing the property in case you default on your monthly payments
3. You might pay many additional fees you can avoid if you take a different route, including interest, mortgage insurance, application, processing fee, and even an early repayment charge.