The interest rate cut has made housing loans cheaper; the banks are competing aggressively for home loan business and there is every reason for buyers to get into the property market, says Samuel Seeff, chairman of the Seeff Property Group.
It is easier to find a willing bank provided you qualify for a mortgage loan and the process is fairly straightforward. You’ll need a clear credit record and positive credit score, provide proof of income and FICA verification of your identity and address. If self-employed, the process is a little more involved and you will need additional documentation.
Pre-qualification and what you can afford
Start with a pre-qualification to avoid disappointment and know exactly how much you can buy for. Approach your own bank or a mortgage originator such as Ooba who works with all major banks and can likely secure a better deal for you, says Seeff.
Unless a first time buyer, you will in all likelihood need pay part of the deposit in cash. Budget for around 10%-15%. Additionally, you will need to pay transfer duty (above R900,000) and transaction costs. On a R1.5 million property, this would amount to about R90,500 (inclusive of bond costs).
Getting a housing loan and five days to shop around
Once you have found your property and your Offer to Purchase is accepted, a formal application for a housing loan will need to be done. Your agent will assist with this with the help of a mortgage originator, or via your own bank.
In terms of the National Credit Act, the bank will provide a “quotation” or pre-agreement setting out the loan amount, proposed interest rate and terms upon which they are prepared to grant the loan. The applicant (borrower) then has five business days to shop around for a better deal or to accept the quote.
Sean Guy, sectional title division manager for Seeff Southern Suburbs says that the banks essentially look at affordability of the loan to the buyer and their assessed value of the property and will need to satisfy itself that there is sufficient equity in the property. If the bank's valuer does not find value, the it may still grant a bond but based on the lower valuation of the property.
Assuming a property is sold for R2 million subject to an 80% bond, but the bank only finds R1.8 million in value and consequently offers an 80% loan on that lower value, the buyer will be left with having to make up the shortfall. If unable to do so, the sale would likely become void. This again just drives the point of pre-qualification and ensuring that you invest wisely and work with a credible agent, says Mr Guy.
Property types suitable for mortgage bonds
Stand-alone residential dwellings are generally considered good security for mortgage lending provided it is habitable and insurable and all necessary services (water and electricity supply) are in place, and that the bank can find sufficient value. Sectional Title Schemes need to be in a good financial standing. Vacant land is not suitable for mortgage loans unless it comes with a plan to build within six months which must comply with strict building requirements and a specific process to be followed.
The National Credit Act (NCA) and your home loan
The National Credit Act seeks to promote a fair and non-discriminatory marketplace for access to consumer credit and places responsibilities on credit providers to report information to the National Credit Register or a credit bureau when concluding or amending a credit agreement which includes mortgage loan agreements. Details to be recorded include the details of the borrower, principal debt, period of repayment, interest rate and monthly repayment amounts.
Acceptance of the mortgage loan quote is subject to the bank’s standard terms and conditions which will be contained in the pre-agreement attached to the quote. In terms of the NCA, all terms and conditions must be clearly explained to the borrower before the agreement is signed.
You will receive a copy of the credit agreement as well as a copy of the title deed; the original will be retained by the bank until the mortgage loan is paid in full and the bond cancelled.
A credit provider must refer a consumer to debt counselling before taking any legal steps to enforce a credit agreement to which the NCA applies or to repossess any goods sold thereunder and this includes a mortgage bond.