Land or property acquisition through mortgages in Nigeria is an attractive option for individuals who prefer to spread payments for the property over time rather than pay the full price up front. A mortgage is a long-term loan secured for the purpose of acquiring land or property. It is a legal arrangement where the property serves as the collateral for the loan, with the lender having the right to enforce or sell the property if the borrower defaults in repaying the loan over the agreed period(s). Its suitability depends on the lender’s (mortgagee or mortgage institution) interest rates and the borrower’s (buyer or mortgagor) financial capacity and ability to withstand long-term repayment risks.

In this article, we discuss the different types of mortgage loans available, mortgage institutions, and the factors to consider when applying for a mortgage facility in Nigeria.

What Are the Types of Mortgage Institutions in Nigeria?

1. Primary Mortgage Banks (PMBs): These are specialized financial institutions licensed to provide mortgage loans for property acquisition and development. Some examples of PMBs in Nigeria include: Abbey, Infinity Trust, Platinum, FBN, Jubilee Life, etc.
2. Commercial Banks: Commercial banks offer mortgage products alongside regular banking services, usually with stricter requirements and higher interest rates. They are considered the last resort for mortgage facilities among finance professionals.
3. Microfinance Banks (MFBs): MFBs offer smaller-scale mortgage or housing loans, often targeted at low- to middle-income earners.
4. Federal Mortgage Bank of Nigeria (FMBN): The FMBN is the primary Federal Government-owned institution that provides long-term, low-interest mortgages mainly through the National Housing Fund (NHF) scheme.
5. State Government Mortgage Institutions: These are state-established bodies that offer housing and mortgage support to residents, often on subsidized terms.
6. Cooperative Societies: Mortgage loans can also be accessed through member-based associations that pool funds to provide loans, including land or housing-related financing to their members.

What are the Types of Mortgage Loans in Nigeria?

1. Conventional Bank-Issued Mortgage Loans: This is the most common type of mortgage loan in Nigeria. It is issued by either the primary mortgage bank or a commercial bank. Here, the mortgagee or mortgage institution provides the mortgage loan to the mortgagor, who takes the mortgage loan and offers their property or land as collateral, while the mortgagee holds a legal interest in the property as security until the loan is fully repaid.
2. National Housing Fund (NHF) Mortgage: This mortgage is managed by the Federal Mortgage Bank of Nigeria, and is common among salaried workers who are NHF contributors and meet eligibility requirements.
3. Home Construction Mortgage: This mortgage is widely used where the borrower already owns land and needs phased funding to build.
4. Developer-Assisted Mortgage: This type of mortgage is common in estates and new developments, where developers partner with mortgage banks to offer structured payment plans.
5. Refinancing Mortgage: This is a mortgage facility that allows an existing mortgage to be replaced with a new one, usually to adjust the interest rate or tenure.

What Are the Factors to Consider When Buying Land Through a Mortgage in Nigeria?

Engage Professionals

It is essential to engage professionals to guide you through the process of buying land through a mortgage. You typically need a lawyer to advise you throughout the negotiation and contract for sale stage with the seller of the land. You also need a surveyor to verify the property boundaries, identifying any encroachments, and map features to ensure that the legal description matches the description of the land or property.

Although mortgage banks typically appoint lawyers, valuers, and surveyors during the process, these professionals do not represent you as the buyer but protect the bank’s interests. To avoid a one-sided mortgage contract that is unfair to you as the borrower, you also need a lawyer to read through every word and fine print in the contract and advise you appropriately.

Eligibility of Land for Mortgage

Not all land can be mortgaged in Nigeria. For land to qualify as collateral for a mortgage loan:

• It must have a verifiable title (e.g., a Certificate of Occupancy, Registered Deed of Assignment or Conveyance). If you are purchasing the property with a mortgage loan, the title has not yet transferred to you. In this case, the Mortgagee’s Lawyer prepares a tripartite Deed of Mortgage. You will require the services of a lawyer to review the Deed of Mortgage to protect your interests.
• The property must be free from any kind of encumbrances, disputes, or not be under government acquisition. Conducting due diligence on the property will reveal any defects in the title documents or encumbrances on the land. Read our article on conducting due diligence when buying a landed property in Nigeria.

Interest Rates and Tenure

Mortgage interest rates in Nigeria are relatively high compared to other jurisdictions. When buying a property through a mortgage loan, it is necessary to consider the interest rate because it determines the total cost of the mortgage over time and can significantly increase the amount ultimately paid for the land beyond its original purchase price.

Financial Capacity and Exit Strategy

Before taking a mortgage loan, consider the associated fees such as legal fees, valuation fees, percentage of equity contribution, or down payment. Also consider your ability to service the loan long-term, whether the land can be resold easily, the property’s insurance coverage, and the conditions for loan restructuring or refinancing. A clear exit plan reduces financial risk.

Due Diligence on the Land or Property

Mortgage institutions conduct due diligence on the property, but their interest is primarily to protect themselves, and not you as the buyer. Having a lawyer to conduct due diligence on the property is vital to protect your interests as well. Read our article on conducting due diligence when buying a landed property in Nigeria.

Valuation of the Land or Property

In mortgage transactions, the mortgage institution conducts its own valuation, which may differ from the purchase price. Usually, this valuation determines how much the bank is willing to lend, and may require you to increase your equity contribution if undervalued.

Conclusion

Mortgages in Nigeria enable affordable, long-term homeownership by spreading costs over years, but they are not without risks. From high interest rates to strict enforcement rights, to title issues, and associated costs. Thus, proper legal due diligence, professional guidance, a full understanding of mortgage terms, and realistic financial planning become non-negotiable for a successful mortgage/loan acquisition and repayment.