Why Some Properties Cannot Be Financed With a Mortgage

You find a house you like, negotiate the price, and tell the seller that you intend to pay with a mortgage. Then you hear something you didn't expect: “The property cannot be financed with a mortgage.” This can be confusing because you may already have the income, deposit and documents needed to qualify for a loan. But mortgage approval has two sides: the borrower and the property. A lender is using the property as security for the money it lends you, so it needs to be satisfied that the property has acceptable title, value, documentation and legal status.

Documentation and title

A lender needs to establish that the person selling the property has the legal right to sell it and that the lender can properly secure its interest in the property. Certain conditions state that the property must conform to planning requirements and have sufficient value to secure the loan. This means a property can look perfectly fine during an inspection and still create a problem during legal and technical due diligence.

Valuation

Suppose a seller is asking ₦80 million for a property, but the lender's valuation determines that the property is worth only ₦65 million. The lender may not be willing to lend based on the seller's ₦80 million asking price, because the lender is concerned about the value of the security backing the loan, not simply what the seller wants to receive. The same issue can arise where a property has unusual construction, unresolved planning issues, incomplete documentation or characteristics that make it difficult to value or sell.

The owner and the transaction structure

Some developers have established relationships with mortgage institutions and provide the documentation required for financing. Others sell properties using structures that may not fit a particular mortgage product. Off-plan developments can require additional checks around the developer, land title, approved plans, construction status and how mortgage funds will be released. Don't assume that a developer's statement that “mortgage is accepted” means every lender will finance the property. Ask which lender, which mortgage product and what conditions must be met before you pay a substantial deposit.

This is not necessarily a judgment on whether the property is a good investment; it is about whether a particular lender can safely use that property as security for a long-term loan. A property can be worth buying with cash and still not be suitable for a particular mortgage.

This is why at HausPlenti we don't recommend separating “Can I afford this property?” from “Can this property be financed?” If you are using a mortgage, both questions need to be answered before you commit your money. Found a property you want to buy with a mortgage? Speak with HausPlenti before paying the deposit.