Most repeat buyers rely on the equity from the sale of their first home to finance their new home. However, the process of cancelling one home loan to take out another is not always simple. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, homeowners should consult with a bond originator to help them better understand how to go about the process.
“While experienced real estate professionals will be able to outline the general processes and procedures to follow, a bond originator will have the specialist expertise to know what each of the various banks require for these transactions. Consulting with a representative of both professions will help homeowners navigate the various complexities involved in transactions that involve more than one home loan,” Goslett explains.
According to Mary Lindemann, Chief Operations Officer of BetterBond, SA’s leading bond originator, sellers will need to continue the repayments on their existing bond until it is cancelled and the property is transferred to the name of the new buyer. Similarly, when they buy a new home, they will not be required to start making bond repayments on that property until it is registered in their name.
“To avoid having to pay two bond repayments at once, repeat buyers therefore usually add a suspensive clause to their Offer To Purchase (OTP) on the new home that makes the offer subject to the sale of their existing property and the simultaneous transfer of the two properties. Generally, there is a time limit on the sale of the existing property and once this happens, the transferring attorneys will then co-ordinate the registration of the transfers,” Lindemann explains.
This suspensive clause is also critical when the bank assesses the repeat buyer for the affordability to purchase a new property. To qualify for the bond on the new home, Lindemann explains that the buyer will need to go through the entire application process again and provide all the required supporting documentation. “And, when filling in the application, it is very important to note the intention to sell the property already registered in his/her name, as this can determine the success or failure of the application.”
When reviewing the bond application, the banks will look at the track record of payments on the existing bond and take the outstanding balance owed into account when deciding on an interest rate as well as the loan amount they will offer for the purchase of a new property.
Goslett therefore advises homeowners to prioritise their home loan repayments, adding extra sums to their repayments where possible. “When the time comes to apply for another home loan, partial or skipped payments will count against you. On the other hand, adding a little extra to your monthly instalment from time to time will count in your favour when it comes to negotiating an interest rate on a new home loan.”
As a final word of advice, Goslett reminds homeowners that advice is freely and readily available for any homeowner who is considering buying or selling. “If you are unsure of what processes need to be followed and what you can afford, your first step should be to book a consultation with a bond originator who will be able to advise you free of charge, and can assist you in obtaining pre-qualification for a home loan so that you know what your buying power is. Thereafter, I would recommend arranging another free consultation with a real estate professional who can provide you with insight into what sorts of homes are available in your price range, as well as what price your home will fetch within the current market,” Goslett concludes.