Ready to own a home and you need a mortgage? First, congratulations to you!
But then, how do you find the right home financing lender to give you a good deal on one of your life’s biggest purchases? Purchasing a house is likely the biggest investment you’ll ever make, and if you are a first-time home buyer ready to shop for a mortgage, you’re in good company. This article is for you.
Having no shortage of real estate financing providers in Kenya, finding the right one with a personalized offer can be quite a tedious task. As such, before committing, you need to shop around, collect as much information as you can, and decide on a plan that serves your needs and suits your budget. Take your time with this process; you will find that a lot of mortgage lenders in Kenya have all sorts of financing plans for many different needs, including first-time homebuyer financing plans that are easy to access and process.
That said, this guide gives an overview of the top mortgage providers in Kenya and helps you make an informed decision about the best one for your needs.
You will learn:
- What is a mortgage?
- What are the types of mortgages available in Kenya?
- What are the top mortgage lenders in Kenya?
- What do you require while applying for a mortgage in Kenya?
- Which mortgage term is best?
- What do mortgage lenders consider?
What is a Mortgage?
In a nutshell, a mortgage is a long-term loan intended to help you purchase some property. It is offered by financial institutions including banks, microfinance institutions, SACCOS, building societies, and more. In a mortgage plan, you as the homebuyer use the home and the land around it while the financial institution holds it as collateral up until you clear the principal loan amount and the due interest to the lender.
Mortgages are often known as claims on property or liens against the property. The best thing about using a mortgage is that you get to make a large real estate purchase without necessarily paying the whole amount upfront. With every purchase you make, you get to own your dream home little by little. What you own is referred to as equity while what the bank claims are the debt.
While the most desirable down payment for a mortgage is 20 percent, some lenders may adjust the offer to fit your preference. It is worth noting that generally, the larger your initial down payment, the smaller the monthly installments.
Types of Mortgages in Kenya
There are two major types of mortgages in Kenya.
They are:
1. Fixed-Rate Mortgage
A fixed-rate mortgage is a home financing product that features a fixed interest rate for the entire duration of the loan. This means that from the beginning to the end of the mortgage, the loan carries a constant interest rate regardless of market fluctuations.
Popular products in this category have terms ranging from 10 to 30 years and most of them are amortized loans.
2. Adjustable-Rate Mortgage
In an adjustable-rate mortgage (ARM), the interest rate applied to the outstanding balance varies for the whole duration. Usually, the initial interest rate is fixed for a while after which it begins to reset periodically, on monthly or yearly intervals.
ARMs are also referred to as variable-rate or floating mortgages. The interest rate is reset depending on a specific index or benchmark, together with another spread known as an ARM margin.
If you are planning to pay off the product within a specific timeline or do not want to be financially affected when the interest rate is adjusted, then an ARM is the best financial choice for you.
Top Mortgage Providers in Kenya
1. Standard Chartered Bank Kenya
Standard Chartered Bank Kenya has a comprehensive mortgage plan for homeowners with loans of up to 100 million shillings with up to 100% financing and tenor of up to 25 years. The bank offers three products including home mortgage, construction mortgage, and non-resident mortgage. The interest rates it offers is as low as 12.2%. Additionally, you incur a facility fee of 1% of the loan amount – a minimum of 10,000 shillings.
Other fees you will incur include:
- Legal costs based on the applicable legal fee scale
- Stamp duty charges
- Insurance for fire protection and credit life insurance where applicable
- Valuation fees upon successful application
2. Citibank Kenya
Citibank, which has operated in Kenya since 1975, offers the next-best mortgages with an annual interest of 12.5%.
However, apart from principal and interest accrued, the monthly mortgage payment includes other fees such as:
- Property tax depending on the value of your home
- Homeowners insurance or hazard insurance protects you should damage occur to your home. The insured amount is dependent on the location of your home.
- Mortgage insurance, which is applicable if you make a down payment of less than 20%. This amount guarantees coverage if you default or miss a monthly payment on your mortgage.
Citibank offers both fixed and adjustable-rate mortgages.
3. HF Group
With up to 90% financing of your property’s value, HF Group is another mortgage provider in Kenya with a decent interest rate of 13%. It offers a tenor of a maximum of 20 years if you are employed, and 10 years for small and medium enterprises (SMEs) and groups.
The fees and rates of this outright home purchase structure include:
- Commitment Fee of 1.5%
- Valuation fee of approximately 0.5%
- Legal Fees of approximately 1-2%
- Stamp duty of 4%
The best part about HF Group mortgages is that it includes an insurance cover for fire, mortgage cushioning in case of death or disability, and tax relief for occupied homes.
4. KCB Bank
If you are looking for a mortgage plan with the most flexible payment, Kenya Commercial Bank tops the recommendation. The product is available to salaried individuals who can borrow from 500,000 shillings with repayment periods of up to 25 years.
The financing is accessible up to 90% for owner-occupier, 80% for business premises, and 70% for plot purchases with an interest rate of 13.3%.
Apart from the internal application fees which include appraisal charges of 2.5% of the loan amount and ledger fees of 350 shillings per month, there are other external application fees such as:
- Legal fees
- Stamp Duty
- Valuation fees
- Stamp duty on charge (0.1% of the loan amount)
- Insurance to cover life and property
Check out all KCB’s applicable fees here.
5. CFC Stanbic Bank
CFC Stanbic bank offers home loans at a rate of 14.1%. This financing product is also available as a construction mortgage, which will be financed for up to 90% of the property’s total cost. The financing extends to 105% for a home that has already been completed.
Through attractive product rates, CFC Stanbic Bank is always ready to finance your dream home and bring your big idea to fruition.
What Do You Require While Applying for a Mortgage in Kenya?
The credentials required to obtain a mortgage in Kenya vary from one institution to another. However, your quick checklist should include the following:
- An introduction letter from your employer
- Copies of your identification documents
- At least 3 months’ payslip
- At least 6 months certified bank statement
- A sales agreement, if you are looking to purchase a home
Which Mortgage Term Is Best?
Having looked at the top mortgage providers and their interest rates in Kenya, “Which term is the best?” you may ask. The answer is straightforward: it all boils down to the cost of the house and how quickly you want to pay the loan off. Ideally, many people choose a loan term of 15 or 30 years.
A longer mortgage term means small monthly installments, and while this may seem like an attractive offer, the interest rates are higher than short-term loans. Before choosing a specific term, do the math to determine the one that works best for your budget. For this purpose, each mortgage provider has its own mortgage calculator.
What Do Mortgage Lenders Consider?
A mortgage, being a long-term loan calls for lenders to establish how risky it is to lend to you. Much like any other loan product, the lender will look at your credit score, the home price and the loan amount, the down payment, the loan term, and the loan type. Some mortgage plans are government-backed and typically carry lower interest rates.
All in all, shopping for a mortgage in Kenya is not an overly complicated process. After appraisal and approval, do a property search if you haven’t already, process the offer, go acquire your dream home, and make payments at your own pace. And when moving day comes, trust that Nellions will be available to make moving to your new home a breezy affair.
Happy hunting!😃
