How do I qualify for a bond? A first-time buyer's guide

Buying your first home starts with understanding how much you can afford. If you're wondering how to qualify for a bond, your salary is an important factor, but it's not the only one. Banks also consider your existing debt, monthly expenses, credit history and the deposit you can put down.

Knowing what you may qualify for before you start house hunting can save you time and disappointment. Here's how banks assess your application, what you can do to improve your chances and how BetterBond can help you take the next step towards homeownership.

What does it mean to qualify for a bond?

Qualifying for a bond means a bank is willing to lend you a specific amount to buy a property, subject to its lending criteria. The bank determines the amount, interest rate and repayment term based on your financial circumstances and its assessment of the application.

Under South Africa's National Credit Act, lenders must assess whether you can afford the loan before granting it.

In practice, banks consider two key questions:

• Can you afford the repayments? They assess your income, living expenses and existing financial commitments to determine whether you can manage the monthly instalment.
• Are you likely to repay the loan? Your credit history, payment behaviour and the stability of your income help the bank assess the risk of lending to you.

These factors influence how much you may qualify for and the interest rate a bank may offer.

You don't have to approach every bank yourself. A bond originator like BetterBond can submit your home loan application to multiple banks on your behalf, helping you compare the offers available to you.

The 30% rule of thumb

A common guideline is to keep your monthly bond repayment at around 30% of your gross monthly income (before tax). However, this is only a starting point, not a guarantee of how much a bank will lend you. Each bank has its own lending criteria and affordability assessment.

For example, if you earn R40,000 a month before tax, 30% would be R12,000. But the amount you qualify for could be higher or lower depending on your take-home pay, existing debt, living expenses and other financial commitments.

The size of the bond you could repay with R12,000 a month also depends on the interest rate and loan term.

Use the BetterBond bond calculator to estimate what you could afford and get a better idea of your potential borrowing capacity.

Buying with a partner? A joint home loan application may allow the bank to consider both applicants' incomes. It will also assess both applicants' debts, expenses and overall financial circumstances.

What else do banks look at?

Your income is only part of the picture. Banks consider several factors when deciding whether to approve your application and how much you may qualify for:

• Your credit record: A history of paying accounts on time can strengthen your application. Missed payments, accounts in arrears and judgments may affect your chances of approval or the terms offered.
• Your existing debt: Car finance, personal loans, store accounts and credit card commitments reduce the money available for your bond repayment.
• Your monthly expenses: Banks assess your living costs and financial commitments to determine whether you can comfortably manage another monthly payment.
• Your employment and income: Consistent, verifiable income helps banks assess your ability to repay the loan. If you're self-employed, you may need to provide additional documents, such as financial statements and tax returns.
• Your deposit: A deposit reduces the amount you need to borrow and may strengthen your application.

Do you need a deposit?

Not always. Some banks offer 100% home loans, which means you can finance the full purchase price without putting down a deposit. Approval depends on your financial circumstances, the property and the bank's lending criteria.

Even if you qualify for a 100% bond, saving a deposit can offer several advantages:

• It may improve your chances of approval: Borrowing less reduces the bank's exposure to risk.
• It may help you secure a more competitive interest rate: The size of your deposit can influence the bank's assessment of your application, although a better rate isn't guaranteed.
• It lowers your monthly repayments: A smaller loan means less money to repay over the loan term, all else being equal.

Even a deposit of 5% to 10% of the purchase price can make a difference, depending on your circumstances and the bank's requirements. Remember to keep enough savings aside for the additional costs involved in buying a home.

Budget for the costs beyond the purchase price

Getting a bond approved is an important milestone, but you'll need to budget for other costs associated with buying a property.

These may include:

• Transfer duty: A government tax that may apply when you buy a property. Properties below the applicable threshold are exempt. The threshold and rates can change, so check the latest requirements with SARS.
• Transfer costs: Fees charged by the transfer attorney for transferring the property into your name.
• Bond registration costs: Fees charged by the bond attorney to register your home loan at the Deeds Office.
• Bank initiation fee: A once-off fee charged by the bank to set up your home loan. Depending on the bank's terms, you may be able to add this fee to your bond.

The amounts vary depending on the purchase price, the size of your bond and the applicable fees and taxes. Use a transfer and bond costs calculator to estimate these expenses before you commit to buying a home.

Get pre-approved before you start house hunting

Pre-approval gives you an indication of how much you may qualify to borrow, based on your financial information and an initial assessment. It helps you establish a realistic price range before you start viewing properties.

Here's how it can help:

• Shop with confidence: Focus on homes that are more likely to fit your budget.
• Show sellers you're serious: Pre-approval can demonstrate that you've taken steps to establish your borrowing capacity.
• Identify potential issues early: If your credit record or financial commitments need attention, you can work on them before submitting a full application.

It's important to remember that pre-approval is not a final bond approval. The bank will still assess your full home loan application and the property you're buying before making its final decision.

Once you've signed an offer to purchase, your full bond application can be submitted to the banks for consideration.

How to improve the amount you qualify for

If the amount you qualify for is lower than you hoped, don't give up. A few practical steps could improve your financial position and help you move closer to your goal of owning a home.

1. Pay your accounts on time: Consistent repayments help you build a positive credit history.
2. Pay down existing debt: Reducing your monthly commitments, particularly short-term debt, may leave more room in your budget for a bond repayment.
3. Avoid taking on new credit: Consider postponing new credit agreements, such as car finance, while preparing to apply for a home loan.
4. Check your credit report: You're entitled to a free credit report from each credit bureau once a year. Check for errors and dispute any incorrect information.
5. Save for a deposit and buying costs: A deposit may strengthen your application, while savings will help cover the costs that aren't included in your bond.
6. Consider a bond originator: BetterBond submits home loan applications to multiple banks on your behalf, helping you compare the offers available to you without having to approach each bank individually.

You could also consider a more affordable property or give yourself a little more time to strengthen your finances before applying.

Find out what you qualify for

Wondering how much you could borrow? Start with the BetterBond bond calculator to estimate what you may be able to afford. Then apply for pre-approval to get a clearer picture of your price range before you start house hunting.

When you're ready to buy, BetterBond can submit your home loan application to multiple banks, helping you compare the offers available to you. Your first step towards homeownership starts with knowing your numbers.