Home Loan Products in Kenya: Six Ways of Financing Your Dream Home

Home Loan Products in Kenya: Six Ways of Financing Your Dream Home

Did you know that apart from commercial banks, you can also access home loans from microfinance banks and SACCOs? Indeed, the home loan market in Kenya has come a long way. Gone are the days when only a few financial institutions offered financing for aspiring homeowners. And even then, it was so vigorous to an extent that only a small proportion of the working population could actually meet the stringent requirements set. 

Today, the financial services sector has grown in leaps and bounds, with many more people now having access to loans even through their smartphones! Mortgages are one of the loan products that have witnessed substantial growth in Kenya and Africa in general as the quest for homeownership takes root. This has been buoyed by improved income levels, rapid urbanization and implementation of housing policy among other factors. Currently, over 20 financial institutions including commercial banks, microfinance banks and SACCOs are offering different home loan products.

Despite the growth witnessed in the mortgage segment, many people are still not aware of the different home loan products offered by the various financial institutions in the country. Part of the reason could be inadequate product promotion by the service providers. Certainly, there are great home loan products in the market to choose from, depending on your goals, preferences, and capability. In this edition of our blog post, we highlight some home loan products available in the market. They include:

1. Purchase Financing

This, perhaps, is the most common home loan product in the country. It is usually advanced to those who would like to a purchase a ready-made home. Before getting started on house hunting, you should get pre-qualified, i.e., know your financing limit. Some financial institutions, for example, NCBA, provide 105% financing that covers transaction charges over and above the cost of purchase. But in most cases, you will be required to raise a 20 per cent deposit for the house you have identified and been pre-qualified for. The loan rates and terms vary depending on the financial institution.

2. Home Construction Financing

For those not interested in a ready-made house and would rather customize their homes, this would be a perfect fit. To get this loan, among other conditions, the financial institution will require you to present a Bill of Quantities (BoQ) from a duly registered Quantity Surveyor. Upon receipt, you can then proceed with the construction of your dream home. Most lenders provide a maximum construction period, beyond which, the loan is converted to a mortgage. To this end, you must be ready to hit the ground running as soon as the funds hit the account. Stanbic Bank is one of the commercial banks offering residential construction financing in Kenya.

3. Plot Purchase

When you have identified a perfect location to put up your dream home, but you don’t have the cash to purchase the plot, this loan product would just do the trick. To apply, you must present legal land ownership documentation to the financier. Given the rising fraud in land deals, due diligence must be thorough and absolute. Once you pay back the loan, you can then apply for home construction financing. Step by step, you eventually get your dream home.

4. Mortgage Top-Up

In the course of living, needs emerge but at that point in time, you might not have the funds to meet them. This is where a mortgage top-up loan comes into play. You can borrow additional funds against the value of your home to finance other things like home improvement, school fees, or a car purchase. But for you to qualify for a top-up, you must have a solid track record in repayment. The greatest advantage of this type of loan is having more time to pay the loan.

5. Equity Release Loan

You can also use your house to get a loan from various financial institutions in a process called equity release. The bank will carry out property valuation and then advise on the appropriate amount of equity release. The proceeds can be used to fund other needs that you may have, including but not limited to buying an additional home. Amount advanced and terms vary depending on the bank. Some examples of banks offering equity release loans include ABSA and NCBA. 

6. Development Loans

If you are an aspiring landlord, a construction loan is a financial facility that enables you to borrow funds for constructing a building for sale or rent. All you need to do is to conceive the project and approach the bank of your choice with the documentation for pre-qualification.

Final Thoughts

As you may have noticed above, home loan products come in different shapes and forms. Indeed, there is something for everyone! If you are in the market, you will surely find something that befits you.  Even so, what comes out strongly is that home financing has finally come of age.

Disclaimer: The views shared in this article are those of the writer and do not necessarily represent the position of Herencia or its parent company, Benvar Estates Limited. The article is meant for general information purposes only. Readers are therefore advised to seek professional advice from qualified and legally recognized practitioners.

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