Knowing whether you will be granted a loan and what you can afford, before you start viewing property can remove much of the uncertainty.
Most people can’t buy a home without a home loan, and yet many people who make offers to purchase have no idea whether they will be granted a loan or not.
“This makes for a great deal of anxiety for both buyers and sellers, but it can easily be avoided if prospective buyers get loan pre-qualification from their banks or through their bond originators before they start viewing homes for sale,” says Gerhard Kotzé, MD of the RealNet estate agency group.
Most sale agreements contain a contingency clause that provides for the sale to be cancelled if the buyer cannot obtain the required home loan within a certain period. Such clauses are referred to as “suspensive conditions” and consumers should be on the lookout for this terminology in their sale agreements, he says.
“However, the majority of loan applications currently have to be submitted to more than one bank to secure approval, and the process can take much longer than anticipated in the sale agreement, with the result that many sellers are reluctant now to accept offers from buyers who have not been pre-qualified for a loan.
“They just don’t want to run the risk of taking their home off the market in the belief that it has been sold, only to find several weeks later that the prospective buyer’s home loan application has been refused and that they have to start marketing the property all over again.”
Kotzé says there are also other advantages for buyers who obtain loan pre-qualification, “including the fact that you will know your buying power, and can save time and money by viewing only homes that you can afford to buy.
“This will free you to also pay more attention to the features of each home you do view, to see if it meets your needs and preferences in other ways. In other words, you will be able to make sure you are getting the best value for your money.”
And finally, he says, obtaining loan pre-qualification puts buyers in a strong negotiating position, not only with sellers but also with the bank when it comes to getting the best interest rate on the loan itself – and potentially saving many thousands of rands on the total cost of your home over 20 or 30 years.
“The reason for this is that once you have been pre-qualified, the bank already knows that you are a low-risk borrower with a good credit record and score and a stable employment and financial situation, who can comfortably afford the monthly repayments on a certain loan amount and is most unlikely to default.”