In the previous discussion we advised that one can buy a property through a Mortgage. Let us discuss the step –by-step process in Zimbabwe.
A mortgage is when a Bank or a financial institution assists you purchase a property through a loan and that property is usually used as security for the loan.
Step 1– identify a financial institution that will offer you the mortgage
In Zimbabwe, mortgage loans are offered by;
- Building Societies– these have traditionally offered mortgages as their main products and include CABS Building Society, ZB Bank, FBC Building Society
- Commercial Banks– Stanbic Bank, Barclays Bank, BancABC, MBCA,
- Property Developers and Insurance Companies– you find these offering ‘mortgage’ structures to assist you buy their properties
For their contact information, please refer to the last post.
Banking has evolved from transactional to relationship. Definitely you need to have a relationship with a Bank that will offer you a financial solution. So if you are thinking of getting a mortgage, find a Bank that will assist with that solution.
Like any relationship it should be based on;
- Mutual Trust– can the financial institution be trusted. Remember a mortgage is a long time (lifelong!!!!) relationship.
- Commitment– as a suitor, you are expected also to be committed. One way is meeting the minimum banking history. Most institutions require you to bank for a minimum of 3 months before a loan is considered. Are you committed to Bank to wait that long? When an exception is made that the 3 months is waived, will you direct your income as agreed?
It is also advisable to Bank with a Bank that banks your Employer.
Step 2- Affordability
You have to afford the mortgage loan you want to apply. By this we mean, you should be able to pay back the loan as per the loan agreement.
- Get a mortgage you can afford. Calculate your monthly installment on the mortgage and consider other monthly commitments that you have like car loan installments, accounts with clothing outlets and other financial commitments that you have.
Most financials institute wants your monthly loan installment against your monthly income not to be more than 30% and very few 40%.
- Be realistic about future income. Is your employer performing well and thus be able to meet future salary payments? Other sources of income?
In general, most Banks in Zimbabwe are not funding 100% of the purchase price. By this we mean, the Bank will not give you a loan that covers all (100%) of the purchase price. You are required to raise a deposit which may range from 20 to 40% of the price of the property.
Tips on raising a deposit
- Dispose a movable asset- for example a car
- Savings- this is a hot issue in Zimbabwe emanating from confidence issues with the Banking Sector. Would you consider taking the risk to raise a deposit for your dream home?
- Engage your employer. Your employer can assist you raise the deposit through a special loan or a special guarantee relationship with your Bank
Other upfront costs
It is not only the loan you need to qualify for and raising the deposit, but also upfront costs. Upfront costs are costs that are needed in advance to enable the purchase to go through.
You need to budget for ;
- Transfer fees- fees paid to lawyers to transfer or change ownership from the seller’s name into your name
- Bond registration fees- the Bank offering you the mortgage loan need to place a charge on your title deeds and will remove it after you have paid back the mortgage loan
- Facility fees or establishment fees- these are fees charged by the bank to set up the mortgage or establish a relationship. These are normally once off costs
- Insurance fees- insurance to cover the property and insurance to cover the loan
Step 3- Identifying the property
After knowing your loan qualification and related fees, you need to look for a property that is within your financial limits.Where to look for properties. The following will assist;
- Estate Agents. There are many registered agents who sell properties on behalf of sellers for a commission.Here is a list of reputable ones in Zimbabwe.
- Most newspapers have classifies sections listing the properties. The Held especially the Thursday paper has a broad listing. Also the Sunday Mail has a broad listing.
- Due to the depressed economic activity prevailing, many property owners are losing properties to Banks and other lenders or creditors after failing to pay. You can also attend auctions to buy properties. If you are not able to attend the auctions, you can visit the office of the Deputy Sherriff. The Harare office is located at corner Samora Machel and 4th Street. They have a listing of properties under auction. The office also works with estate agents who sale on their behalf.
What to consider
- You can bargain the price greatly. The highest bidder gets the property
- Moral issues. Does your conscience excuse you to buy a house from a family forced out because of debt?
- Location of property
The price of the property can be judged by its location. This is the key criterion to judge a property. It is said that a good house is equal to a good location. The more desirable the location, the expensive it is going to be.
Currently there are zones or locations that have great potential. These are literally investment zones at the present moment. These areas can be said to be in rebirth and thus their property values will significantly increase in 10 to 15 years to come. Most of the properties are now old and neglected but are sitting on vast land. With renovations on reasonable budgets and investment in gardens, the properties will be transformed into gems. Areas include Waterfalls, Marlborough, Hatfield and Prospect.
Would you invest in new areas being developed?
What to consider when considering location;
- Closer to shops and medical facilities
- Access to transport especially public transport
- Time to search
The truth is you are making a lifelong investment and besides you are not buying sweets.
Take time and shop around. Visit as many properties as possible before you settle for the final. Do not be swayed by emotional attractions like paint and some modern fittings. Look beyond that!!!!!
Conduct a sales comparison of similar properties in your area that have been sold recently is critical. You don’t want to buy a property based on just market value, rather look further to assess if – given the style, land content and existing condition of the property – what is a reasonable price to pay?
Don’t hesitate to make multiple offers. It can help your goal of finding a good buy.
Step 4- Bank processes
The bank will carry out its assessments to determine whether you qualify for the loan. After their internal assessments, they will communicate the result of your application.
They will look at;
- Ability to pay back- your income
- Credit history- they will check public records and other records of your previous dealings with other creditors
- Valuation of the property- Valuation of the property you want to buy will be carried out. So make sure you have access to the property and the property meets the minimum valuation that equals the purchase price being requested by seller
If they are satisfied, you will sign a loan contract and thereafter lawyers will transfer the property into your name and a mortgage bond is registered.
Your seller is then paid after….is this clear?? If not I will dedicate another session giving more detail on the transfer process and bond registration…..what it is and all.
Do you need any clarification on any issues raised above?
Any issues you want clarification on?
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In the next posting we will discuss the process of property transfer in detail and will share tips in indetifying lawyers to assist with the transfer process