Pakistan has been one of the most difficult countries to secure a home loan. Very few banks offer and eagerly market mortgages, and those that do often have tedious and daunting conditions. As a result, home mortgages in Pakistan have historically been as low as the equivalent of just 0.3 percent of the country’s total gross domestic product (GDP).
However, this figure has started to improve gradually due to the initiatives of the ruling government aimed at moderating the access of Pakistanis to home ownership. The government of Pakistan has launched an ambitious push to build 5 million affordable homes under the Naya Pakistan Housing Scheme and consequently relaxed various bank rules governing mortgages, making it more convenient for poor families to secure home loans.
What is a Mortgage?
The term mortgage originates from the financial system of lending. It is a typical loan that is used to buy or keep a home, land or other types of real estate. In mortgage financing, the borrower unconditionally agrees to pay the lender over time, normally in a series of consequential payments that are secured to form a figure higher than the original amount of the loan. The property itself serves as collateral to secure the loan.
A borrower must apply for a mortgage loan through one of the trusted lenders, ensuring that the necessary conditions and requirements are fully met including minimum credit scores and down payments. Mortgage applications are passed through a rigorous insurance and review process before they are approved. La types of mortgage loans vary according to the needs of the borrower, for example, conventional and variable loans. However, in countries like Pakistan, mortgage financing is restructured in light of various principles in line with the banking system and economic dynamics of the country.
How mortgages work
Individuals and businesses around the world are using the mortgage finance model to buy real estate without having to pay the full purchase price in advance. The borrower repays the obtained mortgage loan with an additional amount for a defined period of time in a series of regular payments until they own the property free, clearly and by all legal means. Mortgages are also known as property claims or foreclosures against the property. If the borrower fails to pay or fails to pay the mortgage, the lender has the right to foreclose on the property.
The Mortgage Process: How to Apply for a Mortgage?
Home mortgage lenders begin the process by submitting an official application to one or more mortgage lenders. The lender requests proof that the borrower is quite capable of repaying the loan. This index may include bank statements, the most recent tax returns, and proof of current employment. The lender will also do a mandatory credit check.
If your required credentials are complete in all respects, and therefore acceptable, the application is approved. The lender will proceed by offering the required amount of loan at a certain interest rate. However, the fixed interest rate is a reason why many people in Muslim countries strongly oppose the acquisition of bank loans. Alternatives to interest, like other financial models, still lead to convincing people.
If the question in your mind is how I am pre-approved for a home loan, then the answer is simple. Homeowners can also choose to apply for a mortgage after choosing the property they are looking to buy or while they are still. in the hunt for the right property, this process is known as pre-approval. Being pre-approved for a mortgage can enable buyers to keep a margin in a demand-sensitive housing market where sellers need a full guarantee of whether the buyer will have the money to back up their offer.
Once a buyer and seller agree on the terms of their property, they or their real estate agents meet at what is called the closing. This is the meeting where the down payment is made by the homebuyer or on his behalf to the lender. Once the down payment has been received, the contract stating all the terms is signed and the seller agrees to transfer ownership of the property to the buyer and receive the mutually agreed amount of money. Therefore, the buyer signs any other mortgage documents as needed.
Purposes and types of mortgage loan
A mortgage loan is obtained by borrowers for multiple purposes; however, all of the mortgage loan applications fall within the real estate sector. These loans serve as an aid in buying property. Some of the most common mortgage types and types include:
New home construction
This type of mortgage loan is extended to people who already own a piece of land and need financial support to cover the cost of building a mortgage. house on that earth. The disbursement of this type of mortgage is made in installments during the construction phase by appraisal of the Invoice Amounts (BOQs) submitted by the mortgage applicant duly audited by an approved appraisal agency authorized by the bank.
Purchase of land and construction
This form of loan is given to customers who are looking to buy land with the aim of building a house on that land. The disbursement of a certain amount of this loan is made on the purchase of the plot by the customer, and then the rest of the amount is released in installments during the construction phase by estimating the Invoice Amounts (BOQs) submitted by the mortgage applicant. duly audited by an approved rating agency authorized by the bank.
Home Purchase
As its name suggests, this type of mortgage loan is obtained for buying a house that is already built. This can either be a pre-owned house or in the other case a newly built one.
Renewal
This mortgage loan is extended to those who already own the home ownership, and need funding for renovation. The disbursement of this loan is made in two installments after the borrower has provided BOQs duly audited and authenticated by an approved rating agency authorized by the bank.
Home mortgage in Pakistan
A recent study by Pakistan Housing Finance revealed the fact that there is a healthy demand for home mortgage loans in Pakistan driven by upper-middle-class families in various cities of the country. The report studied 26 Pakistani cities and found that with the right products, systems, financing and less stringent conditions, lenders could possibly have around 500,000 new borrowers. The study set the probative value of the mortgage market at about $ 4 billion with growing inflows into the country’s financial system driven by favorable government incentives.
Various institutions in Pakistan offer mortgage loans. If you are wondering how to apply for a mortgage loan, all you have to do is trust the information on this blog and visit any of the banks that offer mortgage loans in Pakistan. Some reliable banks that offer decent mortgage products with unbiased terms are Bank Al-Habib, National Bank of Pakistan, Standard Chartered, Askari Bank and more. Some other forums where you can get reliable information about mortgage loans in Pakistan include:
Pakistan Mortgage Refinancing Company (PMRC)
PMRC is a Mortgage Liquidation Facility established by the State Bank of Pakistan to address the long-term financing limit in the banking sector and to promote housing finance to the fullest. PMRC serves as an assured source of long-term funding at competitive rates. You can visit the PMRC website to learn more about mortgage financing.
Home Construction Finance Company (HBFC)
Established in 1952, HBFC is the only housing finance institution in Pakistan set up by the Government of Pakistan. Its services are focused on providing funding for the housing needs of lower and middle-income citizens. HBFC serves through its deep-rooted and national footprint of 51 Branches serving citizens across the country.
Conclusion
Real estate mortgage loan in Pakistan has never been a popular choice historically. This is because Islam strongly prohibits both borrowing and lending money in exchange for interest, which means that borrowers end up paying a much higher amount against the figure actually acquired. Therefore, the majority of Muslims prefer to avoid typical mortgages when buying property. Instead, they go for alternatives like rent or rented houses.
However, in recent times, with government initiatives and incentives aimed at helping the lower middle class buy a home of their own, we have seen a significant increase in the number of mortgage loans obtained during the ongoing financial year.
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