Buying a house is one of life’s major events and quite exciting to know your about to own your own home.
Pre-approval additionally gets the applicant started, which will mean
that the transaction will be concluded once consumers have found the house they require.
However, shopping for property is additionally a large financial commitment amid voluminous financial criteria, legalities and paperwork, all of which may not solely place a damper on the experience however also scupper your goal completely if you don’t have your ducks in a row.
Buyers should always try get a head start on the financial application before even thinking of beginning the search for their dream home.
Obtaining home loan pre-approval provides the home buyer with the peace of mind that their credit record is in good standing and that they are considered a viable credit risk,also lets them know how much they can afford to spend and the type of home loan deal they can expect from a bank. Bond originators provide this service free of charge to prospective home owners
What exactly are the criteria for a successful home loan application?
There are tow critical requirements, a good credit record with a track record of repaying contractual debt responsibly, and being able to afford the monthly home loan installment.
The banks will require proof of income and will also ask the home buyer to provide them with an income and expenditure statement, which indicates that there is sufficient net surplus income to service the home loan once all existing debt commitments and household expenses have been accounted for.
Banks are legislated by the National Credit Act to only give credit to consumers who have a good credit record and have proven ability to repay debt responsibly, a bad credit record is literally a deal-breaker.
Although the Credit Amnesty Bill implemented on 1 April 2014 stipulates that credit bureaux must now automatically remove paid-up judgments and paid-up adverse information listings, banks still have access to payment profile information which displays payment histories.
Banks also disqualify applicants who have previously been declared insolvent – only in exceptional cases will they consider approving finance for a rehabilitated insolvent.
Another factor which can count against an applicant, is high credit facilities available on credit cards, retail accounts and access bonds, but does not utilize them. One would expect this to count in the applicant’s favor, the opposite is in fact true.
Banks will automatically include the installment on these high unused credit facilities in their affordability calculation, with the rationale being that the applicant could at any stage max out his or her credit facilities.
In terms of the National Credit Act, affordability of all credit facilities, used or not used, has to be proven.
Before applying for home finance, applicants with unused or seldom used credit facilities with high limits should either reduce the limit or close unused accounts in order not to prejudice affordability for a home loan.
While pre-approval is definitely a green light to start the search for your perfect home, banks will also conduct their own assessment of the home loan applications, including the valuation of the property to ensure that it provides the right level of security for the bond.
Banks are still cautious about approving 100% bonds and it is anticipated that they will become even more so in the face of the poor economic growth and increasing interest rate cycle that South Africa is currently experiencing.
There are advantages of having a deposit is that banks are likely to offer applicants a more attractive interest rate than if they were successful in applying for a 100% bond.”
You as a buyers should not forget to factor in the additional costs of buying and financing their new home, with transfer costs, bond registration charges and the bank’s fees being the primary expenses that should be factored into the budget. Transfer and bond registration costs are variable as they are linked to the purchase price of the property and the size of the registered bond amount.
The bank’s initiation fee, which is a once-off administrative fee, is prescribed by the National Credit Act. Banks also charge every borrower a prescribed monthly service fee once the home loan is registered.
This includes discussing the entire application and sale process and banks’ lending requirements with a professional and ensuring that they are pre-approved for finance before searching for a property.
For applicant’s not providing a bank with a full disclosure of their financial position is another reason for applicants being turned down.
Consulting experienced property finance specialists and estate agents is essential to successfully and seamlessly navigate the potential administrative minefield that property investment entails.
And If you’re incorrectly advised during this crucial process by someone who lacks knowledge and experience of the process, you could end up being rejected by every bank and losing the chance of being a homeowner.