Many moons ago, if you went to your bank and asked how much money it was willing to lend you in order for you to buy a home, you would more likely than not have walked out with a pre-approved bond. This document was almost cast in stone and virtually guaranteed that if you found a home priced within those parameters, the deal was all but done.
Although some banks still advertise pre-approved bonds, these days, this document does not guarantee that a home loan for a specific amount will be granted. It merely serves as an indication that the applicant will probably qualify for the required financing.
While this may be viewed as a waste of time, in actual fact, the exercise can be extremely helpful. Buyers, particularly first time purchasers, often have unrealistic expectations as to what they can afford. The National Credit Act and the overall economic situation has well and truly put a spanner in the works and put the brakes on the amount that banks are willing to lend, even if the applicant earns a relatively high salary.
Debt is a major problem in South Africa and banks now have to scrutinise each and every person applying for a loan extremely carefully. In the old days, the banks weren’t terribly concerned as to how much debt you had, these days, everything, including school fees, your domestic worker salary and your clothing accounts are taken into consideration before additional finance will be granted.
It’s not the only house buying hiccup you can expect. Even if a bank is willing to part with its money, it is not willing to do so if the risk is too high. In other words, even though you may qualify for a certain amount and have found a home that is priced within the budget, the bank will not finance the home if it deems the risk too high. This could apply to properties that are, in the banks view, overpriced.
You may feel that it is entirely your business if you are willing to pay too much for the privilege of owning a home. The banks, however, look at things a little differently and because essentially the property belongs to the bank until the final bond instalment is paid, it has a vested interest in the deal. As stakeholders, banks are not going to risk putting up the money on a deal where if something goes wrong, they are going to battle to get a return on their investment. It would be interesting to find out just how many overpriced properties sales collapse for this reason.
Those with little debt, a good credit record and the required income are going to find it easier to buy property. Even with pre-approval those with a dodgy credit history, those whose taxes are in arrears or those who are up to their eyeballs in debt are not going to be able to get a bond, regardless of how much they earn. These days investing in property is not only about the money, it’s also about the details. Homeownership is a privilege and no one is going to finance a deal unless the buyer can prove that he is responsible, solvent and in a good position to pay the money back.