The stats show that most people who are buying a home need finance for it. Here are a few essential tips for buyers who are applying for a home loan.
According to Cameron Jansen, broker manager of RE/MAX Central, 4 out of 5 people purchasing property in South Africa require funds from a financial institution.
“Essentially what this means is that the majority of property transactions in this country are financed in one way or another. Most buyers and sellers would like to have the finance sorted out and the transaction to go through as quickly as possible. In order to expedite the process, it is important for buyers to be prepared and have all their documentation in order before they submit a bond application for approval,” says Jansen.
First things first
Before applying for a bond, Jansen advises buyers to pull their own credit report, to see if there is any information on the report that could hamper their chances of getting their home loan approved.
“It is important to know what your credit report says before even going through the process of even finding a home, never mind the bond application process. While most people think they are excellent payers and have a clean credit record, it is always worthwhile having a look to make doubly sure. Things that buyers may not have thought about is those secondary or even tertiary credit card accounts where they might be slightly in arrears and may need to catch up on their payments. Even if the buyer isn’t using those accounts they could still be noted as a late payer, which would impact their bond approval aspirations,” Jansen explains.
Get rid of credit
The next step is to get rid of any credit that buyers no longer need or use, as credit has a negative impact on the affordability ratio’s, as determined by financial institutions.
“It is best to have as little debt as possible to ensure that there is sufficient disposable income to cover the necessary affordability ratios required by the banks. If an individual has two credit cards each with a limit of R50 000, the bank will look at those accounts collectively as a potential R100 000 debt, regardless if the money has been spent or not. Therefore, it is best to get rid of at least one and if possible reduce the limit on the other,” says Jansen.
Applying for a bond
According to Jansen, the best way to make the bond application process quicker is to apply for pre-approval from a bank or mortgage originator, before buyers begin their search. This will give the buyer a good idea of the price range that they should be looking in, and they can narrow down their property search accordingly.
Jansen advises buyers to keep a record of their monthly expenses so that they are prepared for when financial institutions ask them for it. Often people aren’t aware of the exact amounts that they are spending every month, in which case he advises them to get statements on their cheque account and credit card to figure it out.
“In the case where it is a couple who are buying the home together, each party should look at their expenses and collectively draw up a household income and expenditure list to provide a clearer image of where they stand financially,” advises Jansen.
Location, location, location
Jansen says that banks provide different interest rates on home loans, depending on the area in which the property is located. For example: homes being purchased in up-and-coming areas generally get a lower interest rate than homes in an area which is declining. Not only does location affect the interest rate, but it also affects the deposit percentage that the bank is willing to offer.
Bear in mind
According to Jansen, buyers need to bear in mind that the bank can withdraw their bond approval at any point during the sales process. It’s advisable for buyers not to take on any debt during this period, or make any large purchases, until the home has been transferred into their name.
“Often buyers get caught up in the excitement of purchasing a new home and decide to purchase a new car or furniture as well. If this requires finance, the bank that originally approved the bond could then decide that the buyer is no longer in a position to financially cover their bond agreement and rescind approval, resulting in the buyer losing the property. It is best to keep everything as it is until after the home is in the buyer’s name,” he concludes.