Affordability problems when it comes to qualifying for a mortgage bond, is often the reason that finance is declined, but sometimes there are just small mitigating factors that stand in the way at that time, says Michael Bauer, general manager of IHFS, the bond origination company which has offices in Cape Town, Durban, Pretoria, and Johannesburg.
“It sometimes happens that the applicant is waiting for an increase in salary and it did not come through when expected. While he is waiting for the few months to pass until his income increases, he can then get his financial affairs in order. There is, too, the option of being placed as a tenant for instance, with the option to buy that property,” said Bauer.
The basic things to remember when sorting out your financial track record and credit rating, be sure that there are no outstanding bills that might have been listed as a non-payment by checking with ITC (everyone gets one free credit check per year).
Retail accounts, said Bauer, is another big issue. They are usually unnecessary, and can cause major budget imbalances, purely by the account holder buying many small items on credit which then add up to quite a large sum of money.
“My advice would be to get rid of all those small retail accounts as soon as possible. Many small items, such as gym memberships or magazine subscriptions, are often not used often enough to warrant the monthly payments on each. And there have even been cases where, when we have added up all the money the person is spending on “extras”, that amount has come to around R2 000,” he said.
A simple calculation shows that if the buyer has R300 a month extra to put towards his bond every month, this equates to R30 000 more house, said Bauer.
“Now, the extra R2 000 a month saved and put towards a bond would get that buyer R200 000 to R300 000 more house,” he said.
One way to do this is to consolidate all the small accounts, close those accounts, refinance the one large amount and pay it back to one lender. This could speed up the rehabilitation period of the prospective buyer’s financial situation and will alleviate any areas where he previously seemed to over-commit.
A good agent will help with the calculation of what amount the buyer will qualify for and be able to afford comfortably, said Bauer. It is the responsibility of the estate agent to make sure the client buys the right “amount of house”.
“It is always better to buy the space you will need in the future (when you have established your family) but not so much that you will have to downscale later,” he advises.
Another factor to remember when buying, too, he said, is that running a home can be expensive. The buyer must add on at least 15 to 20% to cover the costs of running a home to what he would pay toward his bond, to be sure that he is not over-committing himself financially.
“One should never change your lifestyle so drastically in order to buy a home that you feel deprived of other things in life you enjoy,” said Bauer. “In most cases a family could fit quite well into a three bedroom two bathroom home, with a small garden, and not go overboard with added rooms which end up becoming redundant later.”