What is the best approach to home-loan applications?

What is the best approach to home-loan applications?

Private Property South Africa
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Finding your dream home is the fun part, getting property finance is an entirely different story.

Buying a new home is exciting but daunting for anyone, especially first-time home buyers. Finding a dream home is the fun part. Getting property finance is an entirely different story. So, what is the best approach to home-loan applications? Paul Stevens, CEO of Just Property, helps to demystify the home loan application process.

“One certainly feels a sense of confidence in dealing with the bank you have a history with, but new buyers need to be aware that the best deal out there may not come from their own financial institution,” says Stevens. “It makes sound financial sense to get a range of quotes, and you can absolutely do it yourself.”

Mortgage originators

Stevens recommends approaching a mortgage originator before you approach your bank. If you don’t, the bond originator may not be able to best represent you. Once you have an idea of what the open market is prepared to offer, you can use that as a point of negotiation. Bond originators, such as Ooba or BetterBond already have relationships with all the banks; as a result, generally, they have a better bond-approval success rate and can negotiate on your behalf to secure the best rate and terms,” says Stevens. “Our Just Property agents nurture relationships with local bond originator representatives to ensure high levels of customer service and can connect buyers with them”.

“While the overall approval ratio for new credit applications in SA has fallen to 44%, our approval ratio for home loan applications has remained at more than 75% for the past two years, and 90% for those clients that pre-qualify with us first” wrote BetterBond CEO Carl Coetzee in May 2019. BetterBond gives the following illustration of the benefits of evaluating a range of quotes: “The average variation between the best and worst interest rate offered on a bond application is currently around 0.5%, and on a 20-year bond of R1.5 million, that translates into potential savings of more than R120,000 of interest over the lifetime of the bond, as well as a total of about R6,000 a year off the monthly bond instalments.”

Stevens notes that bond originators can also help buyers get a zero-deposit bond, if required. “Our Just Property agents can provide insight into when a zero-deposit bond may be appropriate and that can be further discussed with the originators.”

Kay Geldenhuys, Head of Sales Fulfilment at Ooba home loans, explains: “More than 60% of all the applications received by Ooba home loans are from buyers who have no access to a deposit.” She adds that more than 80% of these applicants “are being approved for finance, and four out of five are successful in their bid to secure a 100% bond. The rest are required to raise a deposit, usually between five and ten percent of the purchase price.”

Applicants using a bond originator will fill in one application form only, provide the documentation required, and the bond originator will do the rest. “You’ll end up with a range of quotes to compare from all the banks. Their service is free, with no obligation attached,” says Stevens.” Our Just Property agents, we know how stressful applying for a home can be, and we recommend our clients make their decision based on the application process that will cause them the least anxiety and achieve the most advantageous rate.”

Stevens points to another advantage of the service provided by bond originators: the prequalification certificate. “Prequalification gives buyers a distinct advantage: sellers want to know that a buyer can afford to buy their home, and a certificate of prequalification is proof of this. It also ensures that buyers know in advance what budget they have to spend and ensures they don’t get in over their heads. Our most professional and experienced Just Property agents understand the value that the prequalification certificate has, how long it is valid for and behaviours the buyers should avoid to protect or improve their prequalification status”.

Prequalification is based on your monthly earnings and expenses, any debts you have plus your credit score. It also follows the guidelines laid out in the National Credit Act. Details you’ll need to provide are your monthly income, what you spend it on (including income tax) and the debts you already have.

The certificate you receive is valid for 90 days after which it is recalculated based on any changes. This gives those who, for example, got a lower qualification based on a poor credit score, a chance to improve their profile.

There is a lot of paperwork involved in applying for finance and if you approach the banks individually yourself, it’s doable but hard work. And, as Stevens notes, not every buyer has the confidence and skill to negotiate the best deal with each bank, which is why Just Property agents encourage the use of a bond originator. The latter typically require only one application form to be filled and will help you collate the required documentation.

Once the applications are received, the banks will respond with their quotations which include the interest rate offered, cost of the credit and any conditions. You can then decide between the quotes and refer them to your bank for further review, if appropriate.

Know what you’re getting into

When you’re doing your sums, Stevens reminds buyers to take into account that purchasing a home has more costs attached then the monthly bond installments. Dave Nezar, Partner at Kaplan Blumberg Attorneys unpacks theses costs:

TRANSFER & REGISTRATION COSTS: As a rule of thumb, you should allow for between 8% and 10% of the amount of the purchase price of the property for all the other costs involved in purchasing a home. This amount excludes the deposit. These costs are commonly referred to as Transfer Costs or Registration and Transfer Costs and are paid by the purchaser.

TRANSFER DUTY: Transfer Duty is a Government Tax levied to transfer the property from the seller's name into the buyer's name. It generally constitutes the major portion of the costs involved.

CONVEYANCERS FEE: Transferring Conveyancers’ fees are for the service the Transferring Attorneys provide to get your new home transferred from its old owner to you and to get the property registered in your name. They are appointed by the seller, and represent the seller, but they are paid by the buyer.

SUNDRIES / POSTAGE & PETTIES: The Transferring Attorneys charge a levy to cover small things like posting documents to other conveyancers, the bank, the estate agent, the Deeds Office, to you, etc.

DEEDS OFFICE REGISTRY FEE: This fee is charged by the Deeds Office for the Title Deed and legal transfer and registration of your new home into your name.

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