Prospective homebuyers should lay the groundwork in order to have the best chance of getting a home loan approved.
Before banks and financial institutions are willing to approve a home loan, they will perform extensive research on the applicant’s financial history, making it ever more important for prospective buyers to be prepared. Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett says that before applying for finance, consumers need to assess their financial situation and know the answers to the following questions:
1. What is my credit score?
“Would-be homebuyers should know their credit score and check their credit record to ensure that everything is in order,” says Goslett. “It is possible for negative credit information to be recorded by mistake. Checking your credit record before applying for finance will allow you time to rectify any mistakes that could harm your bond application success. Consumers are entitled to a free credit report each year, so they should be sure to check it.” Any accounts or bills that have been handed over for collection should be paid and sorted out before applying for finance. Defaults or slow payment notifications will have a negative impact on a credit score, so it is important to make payments timeously.
2. What is my annual income?
The bond amount that a consumer qualifies for will be determined by their income. So it is important to include any bonuses or annual investment returns when making this calculation. Goslett says that annual tax return documentation will assist the applicant in determining their actual yearly income.
3. How much debt do I have?
Disposable income is a key consideration when the bank considers the home loan amount they are willing to grant. For this reason, Goslett says that consumers should try and get rid of debt or at least pay it down as much as possible. “The bank will require applicants to provide them with a list of their monthly expenses to determine the debt-to-income ratio. The ratio will be used as a measurement tool to determine the appropriate bond amount that the applicant can afford,” says Goslett. “Having a lower debt-to-income ratio will be highly beneficial to consumers who want higher bonds.”
4. What is my financial worth?
Financial worth is more than just your income. It also relates to any assets owned, such as vehicles, investments and income-generating properties. Goslett says that all of these aspects add to the applicant’s nett worth and will have a bearing on the amount that the bank is willing to grant.
5. What kind of deposit can I put down?
More often than not the bank will require a deposit. The deposit can vary between 10% and 30% of the purchase price of property depending on the circumstances. Aside from the deposit, applicants will also need additional money for the costs associated with buying a home such as transfer fees, attorney fees and bond costs.
6. What can I afford?
In an ideal situation, the monthly house payment, which includes the bond, interest, taxes and insurance should not take up more than around 30% of your income before taxes. It is possible to get an idea of your affordability levels from an online bond calculator or with the help of a financial professional. A bond originator such as Betterbond can also provide valuable guidance as to how much you can comfortably afford.
“A key element of homeowner readiness is financial preparation. Being prepared and having a clear understanding of your financial situation will make the bond application process far smoother,” Goslett concludes.