When applying for a bond or home loan, it’s not just the buyer’s affordability that needs to be ascertained, it’s the buyer’s credit and payment profile that will be checked carefully and if there is the slightest chance that he has “black marks” against him the bond application will be rejected, says Avia Ebrahim, bond consultant for IHFS, the newly established bond originators for Bardale Village.
“We usually assist and advise estate agents to screen their clients carefully and go through the payment profile and affordability checks before signing an offer to purchase,” she said. “IHFS can help estate agents and buyers nationwide to get mortgage bonds approved and can assist agents with the pre-qualification process.”
In the R450 000 to R750 000 price bracket, we find these households have very little, if any, savings. Usually my advice to these buyers is to try their best to save at least 10% deposit and maintain a good standing with their accounts. The properties will not sell out over the next six months to a year and rather have a decent deposit to put down than apply for a 100% bond (which is now difficult to obtain).
The other thing that home loan applicants need to watch is the way they pay their accounts, payments must be made consistently and should always be the full amount on the due date. “It may seem ridiculous in some instances, but if you cannot pay a small payment on due date for a retail account, how can the banks trust you will be able to pay a big amount on time?”
Ebrahim advises her clients to be upfront and honest in listing all of their retail accounts when sitting with the estate agent or bond originator. It sometimes happens that small payments have been missed in the past and forgotten but these will be recorded in the client’s payment profile. The buyer’s track record may be tainted but if he works toward correcting this it doesn’t take too long to rectify. It usually takes three to six months to sort out and it is better to wait until then to apply for a bond or home loan.
The other problem often encountered by Ebrahim is that some of her clients have no credit scoring or payment profile for the banks to check and if there is no credit profile the bank will then also decline the bond application.
“This is problematic, especially for young people and first time home buyers, because we are encouraging people to open retail accounts and incur debt they don’t need in order to get a bond or home loan,” she said.
“What I advise these clients to do is open a small account with a retail store and pay it in full each month for a few months, this then establishes a score for the banks to refer to,” she said.
While most bonds offered from the banks are usually prime plus 2% and they often offer higher interest rates, the one thing that many do not realise is possible, said Ebrahim, is that the interest rate on a mortgage bond might be renegotiated after a few years of regular payments to the bank if the client asks for this. The credit scoring might be better and the bank might be willing to drop the interest rate on the balance owing.
Last but not least, says Ebrahim, be 100% sure that the home you are putting in an offer on is the one that you will be happy living in for at least five years. Check on the proximity to schools, bus routes, shops, work and doctor’s rooms and be happy that the area will suit your needs. Many people base their decisions on the first viewing when they should go back a few times and check the surroundings before they purchase a property.
Buying a home is a huge financial commitment and much time must be spent on making a decision. It should take at least a year of looking before one makes a decision to buy, said Ebrahim.