A home loan is the means by which most people can afford to purchase a home. It is a long-term loan granted by a bank or similar institution, which takes on the risk of lending you money specifically for a property purchase. In return, the bank charges interest, which is included in your monthly repayments.
These are the basic steps you need to follow to ensure the most successful outcome:
Step one: Get your credit in order
- Credit bureaus in South Africa offer one free annual credit check against your name. Banks also use these bureaus to assess whether you are a good credit risk.
- They check if you are regular in your debt repayments and whether you have any judgments against your name.
- Ensure your credit score is at least 610 if you want your home loan application to succeed.
- If your score is below 610, correct it by prioritising the repayment of debts such as store accounts and credit cards.
Step two: Determine what you can afford
- Create a spreadsheet comparing your income to your monthly expenses. This includes bills, retirement and medical contributions, policies, education fees, and general household spending.
- Don’t forget annual fees—divide these by 12 to get a monthly average.
- Most banks also offer these calculators online. Typically, you’ll need to input your income, expenses, intended loan term (e.g., 20 or 30 years), and the deposit amount you can provide.
Step three: Home loan pre-approval
- While calculators give guidance, they don’t guarantee approval.
- Most banks offer online pre-qualification tools. You'll need to provide the same financial information and deposit details.
- Be honest about your income and spending—banks do detailed checks during the formal application stage.
- Pre-qualification indicates eligibility, but again, it does not guarantee you’ll be approved for that amount.
Step four: Find a property you like
- Use platforms like Private Property or estate agencies to search for homes based on your budget range.
- Physically visit homes that seem like good options—this gives you a clear idea of what you can get for your budget.
- Look at homes slightly below and slightly above your price range. Sellers sometimes negotiate, but don’t rely on this. It’s always good to have a buffer for legal or moving costs.
Step five: Submit an Offer to Purchase
- You can only submit one Offer to Purchase at a time, so choose carefully.
- The agent or seller will assist you with price negotiation if necessary.
- Submit a signed Offer to Purchase outlining the conditions of sale.
- Specify how long the offer will be valid—e.g., three days or a month.
- Once accepted, you can begin the home loan application process.
Step six: Apply for a home loan
- Apply through several banks to improve your chances.
- You will need to provide:
- A copy of your identity document
- The signed Offer to Purchase
- Proof of income
- Six months of bank statements
- You may be asked for additional documents. The bank will notify you of your application status once it’s been assessed.
Happy house hunting!
