Own a home regret-free

1.      Get appraised
When looking to buy a house, start by going to a bank to get an appraisal. This will tell you what you can afford. They will look at your earnings and advise you on how much mortgage you can get.

2. Read the fine print
Before you sign on the dotted line, understand the payment modality and involve a lawyer. Get the documentation that you require and study it. You need documents from the mortgage company, legal documents, sale agreement, lease agreement etc. Understand them and seek legal guidance if need be to understand what you are buying. I meet many people who tell me “I am buying this house” and when I ask them how much it is, they are quick to tell me the cost but when I ask about the payment plans, they have no idea.

3. Do not get conned
You must visit the site before you commit to buying the property. Whether you are buying it off-plan or buying a house that is under construction, or a ready one, you need to see it. This is before you make any payment. If someone is asking you to pay an amount to go and see a house, that should be the first red flag. You can even go to the site without the seller, because if the seller is dishonest, you may just uncover some lies on site.

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4. Do your homework
Due diligence is getting your documents looked at by professionals. You must get a lawyer to do a search, to ensure that the property is free from any encumbrances. That means it was not built on a road reserve, it is not grabbed, and the owners have paid any dues charged – you can trace the title deed back to the very first owner.

5. Check out the developer
Check out your seller. If it is a developer, have they done any existing developments? If they have not, do they have all the approvals required?
After double-checking that the developer has all the approvals required, check the sewer details. Who is handling it? Where is my water coming from? After that, understand the financial model the developer is using. Is he building with your money? Because if he is building a whole estate with your money, that project will stall along the way. Is he somebody with means? Is he getting a bank to finance the project? Where is he getting his money from? If you feel like, for example some windows are too small, get an architect who will tell you if that ventilation is adequate.

6. Get a valuer
You will need to get a valuer to value the property. If you are taking a mortgage, the bank’s valuer will also double-check. If you are not sure about the pricing, let a valuer come and double-value it for you. If it is land, you should get documents supporting where the beacons are held. When buying off-plan, take caution because the documents for that are different. Understand the documentation. The payment models are different too, so it is important to understand the payment model.

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7. Get a great agent
A good agent is the one you need when making a sizable investment. If anything, a good agent will often come highly recommended by previous investors. Still, you need to go to reputable agencies. Agents are now registered at the Ministry of Lands. Check if the agent has an office. Understand the agent. Double check the agent.

Nancy Muthoni, CEO of First Avenue, a real estate consultancy firm and host of KTN’s Property Show

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1. Pay the establishment fees in cash

It has to start from the point where you are negotiating the mortgage. Every mortgage will have establishment fees such as legal fee, mortgage insurance and appraisal fees. One way to deal with them is by paying them in cash instead of capitalising them. Capitalising is where the bank or lender tells you that they will add all those fees to your loan, so that you pay them together, such that you do not give any cash. When you capitalise them, your loan increases, which means your interest also goes up. So the best thing would be to pay the establishment fees in cash.

2. Make extra payments principal only

Where the lender of the mortgage allows, and in most cases they do, it is possible to make extra principal payments and mark them as principal only. What that means is that whenever you make a monthly installment, it has two components: the principal and the interest. If the lender allows you to make an extra payment, say you were paying sh 10,000 a month and you come with an extra sh10,000, you can agree with the lender that the extra payment you have made should go to principal only. That ends up reducing your principal -- if the principal is reducing, then the interest also decreases.

3. Make payments every two weeks

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Where the mortgage is payable monthly, where possible make the payments every two weeks. If, for instance, you are supposed to pay sh10,000 every month, pay sh5,000 after every two weeks. Because a year has 52 weeks, you will find that if you make the payments after every two weeks, it means you have paid 26 times, and the result is that at the end of the year you will have made a total of 13 payments instead of the normal 12 had you paid monthly. That means you will make an extra monthly payment every year, which will go towards reducing your loan. When the loan reduces, the interest also reduces.

 4. Utilise your windfalls

A windfall is where you get unexpected extra money, for instance, a bonus at work, a company you have invested in pays huge dividends that you were not expecting – put all those windfalls into the mortgage payment.

5. Re-finance the mortgage

Refinancing means selling off the loan to another lender, and then you pay the new lender instead. If, for example, you have taken a sh10 million mortgage for 30 years, and you have paid sh2 million off from the sh10 million and sh8 million remains, then you can get another lender willing to pay off that loan from the initial lender, then reduce the payment period to 15 years. It will then be easier to pay because it will be accompanied by a lower interest rate and it will be possible to negotiate further.

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Dr Samuel Njoroge, a finance and investment consultant

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