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Real Estate Financing in Kenya

“Just because someone has a Real Estate Investment dream, financial constraints should NOT make their dream any less desirable.”
Real estate investment ambitions might range from owning a home to investing for long-term rewards. As a result, let us first acknowledge the importance of financing in making these investment ideas a reality and the options open to you.

Real estate investment in Kenya has grown in popularity to create wealth and generate consistent income. Given these possible opportunities, we will review the many Real Estate Financing options available in Kenya to help you achieve your dream.

Bank Mortgages

Bank mortgages are one of the most popular methods of financing real estate.
This entails borrowing money from a bank to buy a home. The purchased property is then used as security or collateral for the loan. The bank requires a down payment, typically 10% to 30% of the property’s worth. The remaining sum is then returned in monthly installments over a set period.
Selecting a bank that matches your requirements is critical because different banks provide varying interest rates and conditions. Banks that offer mortgages include House Finance Group, formerly House Finance Company (HFC), Stanbic Bank, Equity, KCB, Diamond Trust Bank (DTB), and Standard Chartered.

Savings and Personal Funds

You don’t have to see the entire staircase; take the first step. – Martin Luther King, Jr.
While this remark isn’t about financing, it is about taking proactive measures to shape our future. If your finances aren’t where you want them to be, it’s time to make changes and start saving.
Personal savings or funds can also be used to finance a real estate investment. You can use your accrued money to fund your investment. Using your resources is helpful since it allows you to avoid debt and interest payments that come with other types of financing. Furthermore, it may minimize the amount of loan you will need to obtain when making an investment option.

Cooperative Societies (SACCOS)

Cooperative societies are common in Kenya and can offer an alternate form of real estate finance.
The primary goal of cooperatives is to improve the financial situation of their members. Kenya now has more than 14,000 registered cooperative societies. These societies pool their members’ funds to invest in various enterprises, including real estate.
As a member of a cooperative society, you contribute a certain amount regularly and can obtain financing for property through the society. Cooperative societies often provide reasonable interest rates and flexible payback terms, making them an appealing option for people who may not be eligible for bank mortgages. Kenya’s cooperative societies include Mwalimu SACCO, Harambee, Stima, Kenya Police, and Afya SACCO.

Seller Financing

This is a situation where the seller of a property acts like a bank for the buyer. Here’s a breakdown:

  • Normal scenario: Typically, a buyer gets a loan from a bank (or lender) to purchase a property. The buyer pays back the loan with interest over time.
  • Seller financing: In this scenario, the seller offers financing instead of the bank. The buyer pays the seller directly, with a down payment upfront and then installments over a set period, usually with interest added.

This can be helpful for buyers who:

  • Can’t get a traditional loan: Maybe their credit score isn’t high enough, or they don’t have the usual down payment banks require.
  • Want more flexibility: Seller financing terms can be negotiated directly with the seller, potentially offering more flexibility than a bank loan.

Mortgage Refinancing

There are several reasons why homeowners consider refinancing their existing mortgage:

  • Lower Interest Rates: This is the most common reason. If interest rates have dropped significantly since you took out your original mortgage, refinancing can save you a substantial amount of money on interest over the life of the loan. The rule of thumb is that refinancing makes sense if you can reduce your interest rate by at least 1-2%.
  • Shorten or Lengthen Loan Term: You can use refinancing to adjust your loan term. Your current mortgage has a 30-year term and a high monthly payment. Refinancing to a 15-year term will increase your monthly payment but allow you to repay the loan faster and save on interest in the long run. Conversely, refinancing to a longer term (like a 40-year loan) will lower your monthly payment but extend the repayment period and ultimately cost you more in interest.
  • Cash-Out Refinance: This option allows you to tap into your home’s equity (built-up value). The new loan amount will be higher than your existing mortgage balance, and you receive the difference in cash. This cash can be used for various purposes like home renovations, debt consolidation, or education expenses.

Things to Consider Before Refinancing:

  • Closing Costs: Refinancing involves fees like origination charges, appraisals, and title insurance. Make sure the potential interest savings outweigh the closing costs.
  • Break-Even Point: It takes time to recoup the closing costs through your monthly savings. You should plan to stay in your home long enough to justify the refinance.
  • Impact on Credit Score: Refinancing involves a hard credit inquiry which can slightly lower your credit score temporarily.

Finding the Right Refinance Option:

  • Shop Around: Compare rates and terms offered by different lenders.
  • Consider Online Lenders: They may offer competitive rates and a streamlined process.
  • Consult a Mortgage Broker: They can help you find the best refinance option for your needs.

Kenya Mortgage Refinance Company (KMRC):

While your example mentions KMRC, it’s important to understand that it’s not a direct lender to individual homeowners. KMRC is an institution that provides funding to banks and other lenders, which allows them to offer more competitive mortgage rates to borrowers.

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