If you are like most home buyers, you will need to apply for a home loan from a bank or other financial institution when you decide to become a homeowner.
You can visit your bank’s home loan department and apply in person. However, a knowledgeable and experienced mortgage originator can simplify the bond application process for you - and possibly secure a more favourable interest rate.
Originators
Mortgage originators offer a range of services, including submitting your application to several major credit providers on your behalf. This will significantly improve your chances of having your bond application approved.
They will also help you collate all the documents banks need to evaluate your home loan application. These include copies of identity documents, recent bank statements, proof of income such as payslips, and a list of your household expenses.
Can you afford it?
Before applying for a loan, you need to know what home loan amount you qualify for and be sure you can afford the monthly repayments. Private Property has an online affordability assessment calculator, which will help you establish what you can afford. This exercise will also point you to ways in which you may be able to cut back on unnecessary expenses or pay off debt to qualify for a bigger bond.
Before approving your loan application, the bank will consider your total monthly income before tax and expenses have been deducted, as well as your net income minus your monthly expenses. These include vehicle finance instalments, credit card payments and household expenditures.
Good credit
Before applying for a home loan – or even looking for a home to call your own - you need to build a good credit history. This is because your credit score is the first thing a bank will look at when deciding whether or not to approve a home loan.
If you already have a record of credit, for instance, a credit card or vehicle finance loan, you can check your credit score at the credit bureaus operating in South Africa. These include Experian and Transunion, and you are entitled to one free credit report from each once a year.
If you don’t already have a credit track record, there are several ways of establishing one. You can open a cell phone account or apply for a bank credit card or vehicle financing. Once your accounts have been approved, you need to be meticulous about monthly payments - being sure to pay instalments regularly, on time and in full.
If you have a poor credit record, defaulted on payments, or have had a judgment against you, your loan application will almost certainly be turned down. In this case, it’s best to postpone house hunting for now and work towards improving your credit score.
Deposit
The amount of cash you have available to put down as a deposit will significantly affect the outcome of your home loan application. The higher your deposit amount, the better your chance of securing a home loan because the bank will be taking on less risk.
An added plus is that a bigger deposit will almost certainly mean you pay a lower interest rate on your borrowing amount. Also, because the amount you borrow will be less, your monthly payments will be lower.
The fact that you have saved for a deposit demonstrates financial discipline. It shows credit providers that you are a responsible person who will most likely ensure that your monthly instalments are regularly paid on time.
Writer: Sarah-Jane Meyer