September 12, 2022

Mortgage Vs SACCO Loans – The Best House Financing Options in Kenya in 2022

Owning a home is most people’s dream. But it comes at a cost. Compared to other real estate financing options, mortgages remain the common way to purchase a home globally, but Kenyans remain skeptical of them and the mortgage uptake in Kenya is still nothing to write home about.

Mortgage Projections

Mortgages are quite attractive owing to the monthly payments and low interest rates compared to other forms of borrowing. This is particularly because the loan is secured against your property. The downside, however, is the large down payment, which is usually 25% of the property’s value as is the case with the Kenyan market.

As straightforward as it sounds, a mortgage, even for those eligible, quite simply remains a financial overstretch for most. For instance, if you borrowed a 25-year mortgage loan of Ksh 15 million from the Standard Chartered Bank at a rate of 12.5% a month, you’ll be required to fork out at least Ksh 163,500 every month inclusive of legal fees, tax, and insurance.

If you paid a 25% deposit, the total monthly payment reduces to about Ksh 122,000. As such, it is better to save enough down payment to put up as equity for the house. This reduces your monthly obligations allowing you to save for other things. Also, you can opt to make accelerated payments to reduce the ultimate cost of borrowing.

While this option may seem expensive – given that your total repayment by the end of the 25 years will be more than double the principal amount – it still is viable since you remain financially liquid in the short term, freeing you up to invest in other ventures.

The largest inconvenience that mortgages have is that a lender can foreclose the property if one defaults on their payments. This usually happens to salaried individuals and it causes a lot of inconveniences, even trauma, to families.

There are also no shortcuts to owning a dream home with a mortgage loan. Lenders insist on going through the proper channels by using only qualified and certified professionals such as architects, contractors, and engineers.

Other Financing Options

Construction Loans

A construction loan is another simple solution to owning a dream home if a mortgage is out of the question. This type of loan, however, is attractive to landowners in terms of financial obligations since they attract higher interest rates as they are considered risky. The loan is disbursed to individuals/contractors managing the project and the payments are made in installments based on the stage of construction.

Banks in Kenya offer up to 60% financing for land purchase, and 70% for construction. However, some offer 100% if you are a landowner or 80% of the total cost of buying and building such as ABSA Bank. A downpayment of between 20 to 25 percent is also required.

Usually, the institution financing your project will require you to begin making interest-only repayments during the construction period and repay the principal and interest upon project completion. Hence, it is important to shorten the construction timeline to avoid higher loan costs.

Borrowing from SACCOs

In mid-2019, the World Bank estimated that Savings and Credit Cooperatives (SACCOs), provide approximately 90% of Kenya’s total housing finance. Most of them offer fixed interest rates that are below 12%. But to qualify, you must be a member of the registered SACCO and have saved with them for not less than 6 months.

SACCO loans offer loan amounts up to three times one’s savings balance. The repayment terms can stretch for up to 7 years. While this option is attractive, for a project costing, say Ksh 4.5 million, you need to have at least Ksh 1.5 million saved with your SACCO. Accumulating such savings stakes time, so word to the wise: start saving early.


The Harambee spirit has always been strong among Kenyans. You can also finance a home by coming together with a few individuals and pooling your resources together. If you want to buy or construct a house that goes for, say, 12 million, you and the members of your Chama can contribute towards the project for a certain period. If your group, for instance, has 50 members, to hit the target in a year, each member will have to contribute Ksh 20,000 per month.

The downside, however, is that the members may not be willing to contribute in bulk and the project could take years. Also, the target amount may not be hit, in which case you will be forced to return the money to the members not to mention that there is a risk of failed projects, which could eventually dismantle or ruin the reputation of the group.

Investment Groups Backed by Financial Institutions

Banks also form Chamas where they invite individuals to be members and to make monthly contributions. If you want to purchase property or build a home, you can borrow from the members at a certain interest rate. KCB Bank, for instance, through its Chama Loan offers interest rates of 13% on loans of up to 10 times the Chama savings.

These loans, however, are available to the group as a corporate body but an individual can also borrow and present other members as guarantors. The repayment period can be up to over 6 years.

Tenant Purchase Scheme/Rent to Own

In a tenant purchase scheme, one leases a house and the lease payment is split to cover the agreed down payment and another portion as payment for living in the house. Typically, the prices carry the market value excluding any renovations done by the tenant. The buyer pays a deposit, which usually ranges between 10% and 20% of the sale price. The repayment period can be up to 20 years.

In Kenya, parastatals and real estate firms develop housing units then sell them to homebuyers through a rent-to-own plan. Buyers pay a deposit then clear the balance from the rents saved or received.


If you can afford it, you can pay cash for your dream home. This option is more convenient if you have a lot of cash lying around and you will not be obligated to making monthly payments to pay off a debt. Similarly, you avoid paying a lot of cash as interest in an amortized mortgage. Better yet, one doesn’t have to worry about their property being auctioned for failure to honor payments as is the case with mortgage payments. That’s something worth smiling about.

Still, paying cash may seem like the best option, but it has its perks. For one, you are limited to spending the only amount of liquid cash you have. That is, if you spot a house costing Ksh 20 million and you only have half the amount, you have no choice but to live without it.

It is, therefore, important to make sure that you have enough cash to meet your basic needs for a while so you don’t become house-rich but cash-poor. It is also worth noting that if you hope to buy land and build, the value of the land may have appreciated by the time you accumulate the required amount.

There are also other financing options that one can try such as mezzanine financing, timeshares, refinancing, a moratorium on development loans, and utilizing the ‘no deposit’ companies where you enter a contractual agreement with the company allowing you to pay for the house every month while it builds you a home.

All in All…

Deciding which financing option to go with largely depends on your eligibility for a mortgage, how much cash you have, the value of the property, whether you are a landowner, legal fees, interest rates, as well as other costs. Eventually, you want a house you have always dreamt about, and you must make the choice that is economically sound in the long run. Also, remember to be thorough when doing your research.

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