There is a misconception that a ‘pre-qualification’ on a bond means you are guaranteed that a bank has approved a home loan up to a certain amount. This is not true. Nondumiso Ncapai Head of Product for Absa Home Loans explains that many potential buyers say they have this, but what they really have is an assessment of what they can afford, which is determined by using a pre-qualification tool.
“A pre-qualification Certificate that is produced from using such a tool, can be used to show estate agents, and sellers, that a buyer is serious, and that they are in a position to apply for bond finance.”
In Absa’s case this process is called the ‘Home Loan Estimator’, which is available online on the Absa website or the Google Play Store by downloading the bank’s Homeowner app. You are required to complete a quick digital form with details such as your name, ID number, your income and expenses. The tool then runs an assessment, inclusive of finding your credit score in real-time.
“The credit profile assessment tags the user as green, amber, or red with a score out of 10,” says Ncapai, “which simply defines your credit status”. Thereafter the calculator is able to determine your affordability. And all of this is completed within five minutes, at any time of day or night from any device.”
The Absa affordability calculator and its Home Loan Estimator pages are among the highest visited pages on its website, and the tools have seen a significant increase in volumes since June 2020 consistent with the increase in the number of home loan applications as well as an improvement in the quality of the applicants. “With zero transfer duties for properties up to R1-million and the lowering of interest rates that have been introduced so far in 2020, the tools continue to see increasing volumes, despite some households experiencing impact to their income as a result of the current pandemic context,” says Ncapai.
Can you really afford a bigger house?
The current conditions in the market indicate that we have a “Buyer’s Market and what needs to be addressed however, is the expectation that now you can afford a bigger house. Well can you?
Assuming you have used the Absa Home Loan Estimator, and have a good indication of the value of home loan you are eligible for, you may still aspire to purchase a home with a greater value. There are certain things you can do to improve that figure.
Ncapai advises that the first step is to consider settling at least some of the existing debt you may have, such as store loans. “These short-term loans are not only expensive to maintain and we’re most likely use to purchase things that do not have a long-term benefit. If you are able to settle those, you then have some available funds to invest in a long-term asset, like a house.”
Another consideration is to put a plan in place to save for a deposit on a home. “You will in any case need cash to pay for the associated registration and transfer costs. Having a deposit on top of this means Absa may reward you with a lower interest rate when compared to taking up to a 100% loan. And the larger the deposit, the higher value property you can search for.”
Before you put in an offer to purchase
Bear in mind that a mortgage is a long term loan. Before you make an offer on a property you need to consider what you can really afford. Keep in mind that there are costs associated with owning a property.
• Bond registration and Transfer Fee
• Bond initiation Fee
• Insurance, both building insurance and household contents
• Moving costs
• Rates and taxes, and water and electricity
• Levies (in the case of sectional title).
“A qualified and reputable estate agent will be able to provide you with an idea of the average monthly spend on municipal taxes/rates, water and electricity etc. They usually determine this from what the current owner spends. They can also give an indication of what the levies are and, importantly, the growth of the levies, that being the rate of increase over a few years,” Ncapai says.
The application process
Applying for loan to finance the purchase a home is an exciting time but you are setting yourself up for disappointment if you have set your heart on a property that is well beyond your means. Armed with Absa’s Certificate from the Home Loan Estimator, prepares you when you apply for a home loan and will reduce any delays especially if you have already put in an official offer to purchase, and now need to get a home loan approved within a certain timeframe.
There are differing requirements on application, depending on whether you are a salaried individual, earn an income through commission, or if you are a business owner. “An Absa Express Agent, Home Loan Consultant or your Mortgage Originator will help you in this regard,” says Ncapai.
Regardless, there are minimum requirements:
• Signed copy of the offer to purchase
• Copy of ID or passport
• Copy of proof of residence
• Latest pay slip for salaried applicants
• Three months bank statements, which clearly indicate the latest three salary deposits.
In the case of joint applications, both partners have to submit these documents.
First time home buyers score
“At Absa we have developed a number of solutions which are all focused on delivering superior customer value propositions that address the needs of aspirant homeowners and existing homeowners. We understand the pain points of being a first time buyer for example, for which our MyHome product is directed.”
MyHome is ideal for those who earn a single or joint gross monthly income of up to, and including, R25 400 a month, and comes with the following benefits:
• A Loan-to-Value of up to 100%
• 50% discount on attorney bond registration fees
• Zero initiation fee, translating into a saving of R6037.50 (including VAT)
• Free professional Borrower Education Programme that helps first time home buyers with budgeting, learning the ins and outs of home ownership, and other useful information
• Access to Absa financial planning consultants, who can provide a financial needs analysis.
“I cannot emphasise enough how important it is for those entering the real estate market to do their homework before they start looking at properties. There is a need to have clarity on affordability so that their home search can be directed according to their means. There is nothing worse than finding that dream home, and deceiving yourself that you can afford it. Or worse putting in an offer and having the bank decline the home loan application.
“If you are declined, get your finances in order and try again when you are more stable. At any point, if you remain uncertain, have doubts or questions, an Absa home loan professional can provide clarity, and specific to individual circumstances,” concludes Ncapai.