Buying a house represents a significant investment for many Nigerians, yet the financial costs and commitments involved can often present challenges. Economic realities, including high inflation and exchange rates, have substantially increased the cost of building materials, as well as land and property prices.
According to the Nigerian Bureau of Statistics (NBS), the inflation rate rose to 33.69% in April 2024 from 33.20% in March 2024, marking a 0.49% increase on a month-on-month basis and an 11.47% points higher year-on-year compared to April 2023, when it was 22.22%.
With Nigeria’s estimated population of 228.5 million and a declining labor force participation rate to 79.5% in Q3 2023, down from 80.4% in Q2 2023 among the working-age population, purchasing a house can be especially challenging.
Therefore, exploring alternative methods for financing a house becomes crucial. In this article, we will highlight 7 alternative financing options to consider when purchasing a property in Nigeria.
7 Alternative Financing Options
1. Mortgage Loans
Mortgage loans are one of the most common financing methods for homebuyers in Nigeria. These loans are typically provided by banks and mortgage institutions and can cover up to 80% of the property’s value.
The borrower is required to make a down payment of at least 20% of the property cost. The repayment period for mortgage loans can range from 5 to 25 years, and interest rates can be either fixed or variable.
Key Features
– Long repayment period
– Fixed or variable interest rates
– Requires a down payment
2. National Housing Fund (NHF) Scheme
The National Housing Fund (NHF) Scheme is a Nigerian government initiative established in 1992 to enhance access to affordable housing for citizens. Managed by the Federal Mortgage Bank of Nigeria (FMBN), the NHF Scheme aims to provide affordable housing loans to Nigerian workers.
It is a contributory program where employees aged 21 and above earning at least ₦3,000 per annum must contribute 2.5% of their monthly basic salary to the NHF.
After six months of contributions, they can apply for a loan. NHF loans offer relatively low interest rates and long repayment periods, making homeownership more accessible to middle-income earners.
The Federal Mortgage Bank recently increased the maximum limit for the National Housing Fund (NHF) individual loan from ₦15 million to ₦50 million. This increase aims to ensure equitable access to decent and affordable property for all categories of contributors to the scheme.
Key Features:
– Low interest rates
– Long repayment periods
– Eligibility based on NHF contributions
3. Cooperative Societies
Cooperative societies are another financing option for individuals in Nigeria, especially those in the informal sector or with limited access to traditional banking services.
These societies pool resources from members to offer loans at lower interest rates than traditional banks, with more flexible repayment terms and simplified documentation requirements. This makes them particularly attractive for informal sector workers and small business owners seeking to own a house.
Key Features
– Lower interest rates
– Flexible repayment terms
– Accessible to informal sector workers
4. Personal Savings and Investments
Personal savings and investments are another viable option for financing a home purchase. This method requires disciplined saving and investment strategies over several years. Although it may take longer to accumulate the necessary funds, this approach avoids the interest payments associated with loans and mortgages, allowing for full ownership without debt.
Key Features
– No interest payments
– Requires disciplined saving
– Full ownership without debt
5. Developer Financing Plans
Many real estate developers in Nigeria offer developer financing plans to ease the home buying process. These plans allow buyers to make installment payments over a specified period, often at zero or low interest rates. Developer financing can be particularly beneficial for off-plan purchases, where buyers pay in stages as the construction progresses.
Key Features:
– Installment payments
– Low or zero interest rates
– Suitable for off-plan purchases
6. Rent-to-Own Schemes
Rent-to-own schemes are becoming increasingly popular in Nigeria. These arrangements allow potential buyers to rent a property with the option to purchase it after a specified period. A portion of the rent paid is typically credited towards the down payment or purchase price. This option is particularly beneficial for individuals who may not have the immediate funds for a down payment but can afford monthly rent payments.
Key Features:
– Gradual accumulation of down payment
– Flexibility to buy after renting
– Ideal for those with limited initial funds
7. Family and Friends
Borrowing from family and friends is an informal yet effective method for financing a home purchase. This option can provide the necessary funds without the stringent requirements of banks or mortgage institutions. However, it is crucial to maintain clear terms to avoid misunderstandings and strained relationships.
Key Features
– Flexible terms
– No formal requirements
– Potential for interest-free loans
In Conclusion
The current economic climate in Nigeria makes it necessary for alternative financing options to be discussed. Traditional methods might have limitations that hinder Nigerians from purchasing their homes. This is why these alternative methods need to be discussed, because they offer a more flexible and accessible option and they ease the stress of navigating these economic challenges more effectively.
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