Property ownership is something most people aspire to. It provides a sense of security, is often a source of pride and can usually be used as a financial spring-board for bigger and better things.
For most of us, purchasing property entails applying for a home loan. Although this can be nerve-wracking, it is a process that can be facilitated through the correct preparation. According to Timothy Akinnusi, Executive Head of Sales and Client Value Management at Nedbank, the first step in the home loan application process is to gain a thorough understanding of your financial affairs.
“If you don’t know how your money is being spent every month and what shape your credit profile is in, you won’t be able to gauge what kind of property you could possibly afford,” he notes.
“With this in mind, draw up a household budget and find out exactly how much is being spent on what. You will need to fill in these details on an income and expenditure statement when applying for a home loan anyway, so it’s best to know such information well in advance.” Nedbank’s affordability calculator is a handy tool for this purpose.
In terms of your credit profile, Akinnusi advocates obtaining a free credit report from a credit agency before applying for a home loan. Credit records essentially provide a profile of how you manage your credit affairs and are automatically drawn up by the banks when you apply for a loan.
“Checking your credit record prior to applying for a home loan provides you with a chance to make sure any old or inaccurate information which could negatively affect your home loan application is removed,” he explains.
Then, you need to know how much of a deposit you will need for your intended property, says Akinnusi.
“Generally speaking, a deposit of between 10 and 20 percent of the property price is required by banks to qualify for a home loan. Even if less is required, it’s better to put down as big a deposit as possible because it allows the banks to reduce their risk and your interest rate. Putting down a sizeable deposit also translates into immediate equity for you.”
In addition to a deposit, you need to provide for acquisition and maintenance costs, which can be costly says Akinnusi. Typical acquisition costs include transfer duty (if the property is valued at over R900 000), bond initiation and bond registration fees, pro-rata municipal rates and occupational rent (if applicable). Maintenance costs include rates and taxes, levies (if you are buying into a sectional title development), insurance and electricity and water.
Another aspect to take into consideration when applying for a home loan is to understand what your lifestyle requirements are notes Akinnusi.
“Be realistic and aim for a property that suits your requirements for the period of time you intend to stay there. For example, there’s not much point in aiming for a four-bedroom house complete with pool and tennis court if you and your spouse have no intention of starting a family. Rather aim for something more manageable and avoid getting into unnecessary debt.”
Lastly, Akinnusi explains that Nedbank offers you the opportunity to fill in home loan applications online, which is great if you are a little nervous about approaching banks directly or prefer to apply in your own time.