Most often, consumers rely on real estate agents or third parties to assist them with home loan applications. This results in them not fully understanding what banks consider when approving or declining an application.
Mpho Ramatong, FNB Home Loans Division Channel Head, says first time home buyers can significantly improve their chances of qualifying by familiarising themselves with the common pitfalls that often lead to home loan applications being unsuccessful:
• Low credit score – this takes into account the historical management of your finances. Lenders want to know how well you pay your bills and creditors, amongst other financial commitments, to determine if you would be able to honour your monthly home loan instalments. “Before applying for a home loan, consider checking your credit profile and taking corrective measures if necessary. Consumers in South Africa have the right to get one free credit report, once a year, from a registered credit bureau,” advises Ramatong.
• Affordability – in some instances consumers opt for properties that far outweigh what they can reasonably afford with their monthly income. Moreover, banks want assurance that you would still be able to afford the home loan instalments once expenses have been deducted from your monthly income.
“If affordability is an issue, a higher deposit, joint bond application with a spouse or family member, or property of a lower value should be considered,” says Ramatong.
Getting a pre-approval ahead of a home loan application can help consumers determine if they qualify and whether a deposit will be required.
• Unsatisfactory property evaluation – it is essential that the bank assesses the property you intend to buy to unsure it is in good condition and that the purchase is not far off from its market value.
• Unstable monthly income – when applying for a home loan you will be required to produce your latest payslip and three months’ bank statement as lenders need assurance that you receive regular income. Self-employed individuals are required to produce a minimum of six months’ worth of financial records or bank statements.
• Incorrect declaration of expenses – in most cases applications get declined because expenses might have been duplicated. For example: if you have a credit card that you might be using to fill up for petrol and for groceries, you need not include the groceries portion and petrol expenses in your expense.
“Although every application is unique and assessed on its own merits, taking time to understand what lenders consider when assessing an application will go a long way to helping you purchase your first house,” concludes Ramatong.