The Mortgage Underwriting Standards for the formal sector applies to civil servants, self-employed professionals, and salaried persons who wish to secure a mortgage to purchase an existing home or refinance an existing mortgage loan. Key guidelines are as follows:
Purpose of Loan
The mortgage loan may be used to finance the purchase of an existing home or refinance an existing mortgage loan.
Type of Property Eligible
An eligible borrower may use the proceeds of the loan to purchase either a single-family home or an apartment in a multi-unit building. The property acquired must be owner- occupied.
Eligible Borrowers
Only natural persons are eligible to borrow. Borrowers must either be civil servants, self-employed persons, or salaried employees. Corporations are not eligible borrowers under this product.
Credit Bureau Report
The mortgage lender must obtain a credit report from two (2) independent credit bureau agencies licensed by CBN showing a credit score that translates to a minimum of satisfactory and above.
Limitations on Co-borrowers
A married couple may serve as co-borrowers on the loan. Where a couple is acting as co-borrowers, the income and debt obligations of both people will apply in determining whether the couple qualifies for the loan. If a spouse does not serve as a co-borrower, that person must execute a separate agreement waiving any right to block foreclosure in the event the borrower defaults on the loan.
Borrowable Loan Amounts
• Minimum = N1.5m
• Maximum = N200m
Loan Term / Length
The mortgage loan must be at least 5 years in term at time of refinance with a maximum of 20 years.
Borrower Age
• Minimum – age of legal contract – 21 years
• Maximum – 10years to the legal retirement age
PENCOM Compliance
The Borrower should maintain an active Retirement Savings Account (RSA) with a PENCOM approved Pension Fund Administrator
Interest Rate Structure
The interest rate will be fixed for a minimum period equivalent to the corresponding refinance.
Rollover at End of Review Period
The mortgage lender shall have the option to renew the NMRC refinance at the prevailing rate at the end of the review period.
Minimum Down-payment and Source of Funds
The borrower must provide a down-payment from his or her own funds equal to no less than the amount specified in the table below for the value of the property, as determined at the time that the mortgage is underwritten. This down-payment requirement may not be fulfilled through a loan from a third party.
For self-employed borrowers, the equity contribution will be higher and therefore as follows:
Maximum Permissible Housing-Expense and Total Debt Ratios
A borrower’s monthly housing expense consists of the monthly mortgage payment and other related costs, including real estate taxes and insurance. This is commonly referred as the Payment to Income (PTI) ratio. This ratio may not exceed the percentages presented in the table below of the borrower’s net monthly income at the time that the mortgage is made.
A borrower’s Debt to Income (DTI) ratio includes other payment obligations such as car loans, personal loans, etc. The borrower’s DTI should not exceed the ratios presented below of the borrower’s net monthly income at the time that the mortgage is made.
Form of Mortgage Payment
Payments must be made by a deduction from income at source by the employer and the borrower should leave a direct debit order to cover any ancillary fees.
Amortization Structure
Loan repayments are structured such that the loan will be fully repaid by the end of the period for which it is written.
In no case may the remaining principal amount that is owed increase during the time that the loan is outstanding. (No Negative Amortisation) Default interest can be charged but not added to principal – General computation of Default Interest TBA
Prepayment of Mortgage Loan
The borrower may repay the remaining unpaid principal balance of the loan at any time that it is outstanding, but the mortgage lender may charge a penalty fee. Where mortgage lender’s product line
includes a penalty fee, the information on all charges MUST be made available to the borrower before closing. Such charges should be a nominal fee and not to be designed to achieve yield maintenance.
Seasoning
All mortgage loans submitted for refinance must be at least – six months aged from date of origination.
Delinquency
All mortgage loans submitted for refinance must be current in payments and must have had no delinquencies.
Origination Fee
Any applicable Origination Fee MUST be added to the mortgage interest rate and together advertised by the mortgage lender as the Annual Percentage Rate (APR) to be paid by the borrower on a monthly basis.
Servicing Fee
The borrower will also pay to the mortgage lender on an annual basis a fee not exceeding fifty basis points (0.5%) of the outstanding balance of the loan. The fee MUST be added to the mortgage interest rate and origination fee and together advertised by the mortgage lender as the APR% and paid on a monthly frequency
Late Fees
Payments that are received more than seven (7) days after they are due will be subject to a late charge. All information on late charges MUST be made available to the borrower before closing and borrower consent obtained.
Property Valuation
Property valuation should be carried out by a licensed, independent valuer who is a member in good standing with the Nigerian Institution of Estate Surveyors & Valuers (NIESV) and must carry Professional Indemnity Insurance with an insurance company licensed and in good standing with NAICOM.
Prequalified independent valuers should:
- adopt international appraisal standards and methods;
- meet certain minimum requirements; and
- adopt uniform appraisal process/systems
The lower of the Purchase Price and Open Market Value (“OMV”) of the property to be acquired will used for computation of the Mortgage Loan
Property Title
Good legal title free from encumbrance.
Security Required
First rank legal perfected mortgage over the property for the amount of the mortgage plus interest. This mortgage right must be assignable to a third party (together with the mortgage loan), and where required by law, with the consent obtained at the signing of the offer letter or the mortgage loan agreement.
Insurance
Property insurance in the name of the borrower to cover the replacement or reinstatement cost of the property. This policy is to be index-based, if available. The borrower MUST have life and disability insurance in the joint names of the ML and borrower or the Insurance is assigned to the ML for a minimum of the outstanding principal of the mortgage loan. All insurance policies must note the mortgage lender as the first loss payee.
Title Perfection Duration Insurance
Where a fully perfected Title is not readily available, NMRC will accept Title perfection duration Insurance cover from NMRC approved insurance companies. Such Title cover may however NOT exceed 18 months from closure of the mortgage. In the event it exceeds, the ML will either have to substitute the mortgage loan with an equivalent loan with title or post acceptable collateral
Consumer Protection
Information provided to borrower is in compliance with the relevant consumer protection and disclosure regulations and as prescribed by the Consumer the CBN.
Mortgage Counseling
The ML must during mortgage application process, ensure that the borrower is clearly educated and informed as to the responsibilities he is taking on.
Dispute Resolution
Contractual Arbitration.
