The last 17 years have seen Uganda’s housing finance sector register substantial growth, with the commercial banks’ mortgage portfolio growing proportionally to the rising housing needs of the country. More and more banks and financial institutions are coming up with platforms through which citizens, mostly middle and high-income earners, can acquire financing for their homes on credit.

Of the many financial responsibilities on your plate, owning a home is one of the biggest financial decisions you’ll ever make. And with the large amount associated with purchasing a house, most people will find it more affordable to borrow from a bank, specialized mortgage lender, or credit union, than to pay for the entire property there and then. In other words, they will take out a home loan.

 A home loan, also known as a mortgage, is a contract that a borrower strikes with a lender that allows them to borrow cash to purchase any sort of livable property. The borrower then pays back the loan over a term of 10-30 years.

It is worth noting that if you choose to build your dream house rather than purchase an existing one, you’ll get a construction loan instead of a traditional mortgage. Which suits you better all depends on your preferences.

Here are some terms that you will come across in your application for a home loan:

• The Principal is typically the amount of money you are borrowing i.e. the purchase price minus the down payment and other related fees.
• The Term is the period for which you’re supposed to repay the entire loan.
• The Interest Rate is the annual amount you pay the lender for lending you the money. This is expressed as a percentage of the principal balance.
• The Repayment Frequency refers to how often you’ll need to make payments. Most borrowers repay their mortgages on a monthly basis.
• Closing costs are the costs that you pay on approval of your mortgage and can include everything from land surveying and government fees to title and appraisal fees. As is usually the case, you can decide to pay your closing costs upfront or pay them off over time as a part of your mortgage payment.

Types of home loans

Different borrowers have different needs and budgets. As such, there are three common types of home loans that you can apply to suit your particular situation. These include;

• Fixed-Rate Mortgages- As its name suggests, a fixed-rate mortgage requires you to repay the principal over an unchanging length of time and with a fixed rate i.e. an interest rate that’s not subject to any market fluctuations. The shorter the mortgage repayment term, the lower the interest rate.
• Adjustable-Rate Mortgages- ARMs are the opposite of Fixed-rate mortgages. With variable interest rates that can fluctuate throughout the loan, it is easy to lure buyers with smaller budgets by offering them ARMs with an affordable introductory interest rate. These rates are usually lower than those of the FRM and can last for up to a year. As the years go, there is nothing preventing the interest rates from increasing with the market rate; a reality that may prove costly for the borrower in the long run because of the increased monthly payments.
• Hybrid Mortgages- Hybrid mortgages offer a fixed rate for a determined term, usually 10 years or less, later allowing the interest rate to change up or down as an ARM would. Typically, the interest rate for a hybrid mortgage is higher than that of an ARM and lower than a fixed-rate mortgage.
• Balloon Mortgage- Balloon mortgages are characterized by short terms, often around ten years. For the most part of the term, you’ll make very low payments, sometimes only the interest. But as you approach the end of the term, you’ll be required to settle the full balance immediately. Balloon mortgages can be a risky affair for most borrowers if you don’t have everything planned out.
• Interest-only Mortgage- With an interest-only home loan, borrowers are presented with the option to pay low monthly payments for a set amount of time before they can begin paying the principal. In order to atone for lost time, borrowers have to pay more principal than they would’ve had they gone for a traditional fixed-rate mortgage. Although expensive, interest-only mortgages are a decent option for individuals in their early stages of business or career, who have little money to spare.
• Other minor types of mortgages include Government-Backed Mortgage, Combination Mortgage, and Reverse Mortgage.

Before Acquiring a Mortgage…

Purchasing a home is a big deal. The more you brush up on your home loan knowledge, the smoother the ride will be.

For instance, it goes without saying that your credit plays an imperative role in determining your eligibility for a mortgage. No credit institution will give out their money to anyone with an unfavorable credit history. Good credit also earns you good rates with your lender.

Furthermore, mortgage lenders will not let you borrow too much unless they’re sure of your income’s ability to sustain your mortgage payments. A fast and convenient way that you can determine how much you can borrow is a mortgage calculator. By filling in your loan amount, down payment, and term, the mortgage calculator gives you an estimate of your monthly payment, along with your principal & interest, taxes, and insurance.

Applying for a mortgage

Real estate and financial experts have always advised working with several lenders when applying for a mortgage. This lets you compare offers by evaluating the advantages and disadvantages of each proposal. Three lenders should be enough to provide sufficient variety and competition.

Today, there are a variety of sources from which you can borrow; not just traditional banks. The expansion in the financial services sector has revolutionized lending allowing you to take out a home loan from a mortgage broker, an online lender, a local bank, or a credit union.

Some banks that offer mortgage financing in Uganda include Housing Finance Bank, PostBank Uganda, Standard Chartered Bank, Barclays Bank, Stanbic Bank, Equity Bank, Bank of Africa, and Centenary Bank.

As you evaluate the alternatives, do not shy away from contacting lenders and asking as many questions as possible. At the end of the day, you should come up with a lender that best suits your home loan needs and preferences, and submit an application.

Ensure you document your finances according to what is required in the application. Most lenders will require you to present your;

• Duly filled and signed mortgage application form
• Personal details including; ID/ Passport, Tin Number, Financial card, 3 passport size photos, and in some cases, a marriage certificate
• Proof of employment or certificate of incorporation/ registration
• Proof of income including details on how you earn it
• Additional income details (allowances, commission, etc.)
• Residential history
• 2-6 months’ worth of bank/ investment account statements
• Collateral details such as the property documents

When submitting a home loan application, you may need to seek the services of an appraiser to evaluate and estimate the market value of the property.

The application reviewing process can last for several weeks, during which the lender may need you to answer questions and produce documentation. At times, the process can get frustrating. Just keep in mind that the lender asks questions because they are trying to push through the loan. If you have met all of their requirements, there is nothing preventing them from approving your loan for you to purchase and move into your new home.

Best of luck!