We Find The Money,
You Find The House
I’m beginning my house hunt, but I’m not sure whether the bank is going to give me a bond in the price range I’m looking. How do the banks determine whether they think I can afford a house?
Tanusha Kuni, ooba elite homeloan consultant answers:
When a bank considers your bond application, they determine affordability in one of two ways. The first is called “return to income” and the second is determining your net surplus income.
Return to income means that your monthly bond repayment is compared to your gross monthly salary, and worked out as a percentage. In most cases, the bank will not allow your bond repayment to be more than 30% of your gross monthly income.
For banks to determine your net surplus income, they calculate your gross salary minus your deductions, including existing bond repayments, vehicle repayments, personal loan repayments, 5% of your credit card limit, 5% of your overdraft limit and the repayment of your retail accounts.
Then they deduct your declared monthly expenses to work out what you have left over – a surplus – which you can use as your bond repayment. This amount is then multiplied over the number of months you’d be paying back your home loan, taking into account the interest rate, to determine the size of home loan that you’d qualify for.
If the property is being bought by two partners, then both their incomes will be used to assess the qualification, and a credit check is run on both parties.
The ooba website bond affordability calculator asks for your income, deductions and expenses, and calculates this for you. You can also apply to ooba for a pre-approval, so that you know exactly what price house you can hunt for.