Bond Application – Your Step-by-Step Guide to Securing a Home Loan

Article summary:

• Get pre-approved to find out what you can afford.
• Once you’ve found the house you want, you make an Offer to Purchase.
• Your chances of home loan approval depend on your credit record and the size of your deposit.
• Apply for a home loan with ooba Home Loans to get the best deal on your bond.

Buying a new home is an exciting step in your life, and thanks to home loans, buying a home becomes a realistic prospect regardless of your financial situation.

But how does one go about getting a home loan? To make the process less intimidating, we provide a step-by-step guide to bond application that will help you on your way.

Six steps to bond application

1. Pre-approval.
2. Make an Offer to Purchase.
3. Document preparation.
4. Submit the application.
5. Review the offers.
6. Bond registration and transfer of property.

1. Pre-approval: Find out how much you can afford

The first step in bond application is to find out what you can afford. We provide a quick and convenient way to achieve this through our pre-approval process.

What is pre-approval?

We assess your financial situation, including your credit record — the most important factor in bond approval.

At the end, you’ll receive a solid estimate of what you can afford and a certificate of pre-approval.

What is the difference between pre-approval and bond approval?

Pre-approval just provides you with an idea of what you can afford. It’s called pre-approval because you will have an idea of an amount you can apply for that will be approved.

Bond approval, on the other hand, refers to a home loan application being approved by the bank.

The advantage of pre-approval

You have an idea of what you can afford and can house hunt within that range, confident that whatever property you settle on will be within your price range.

This is especially useful when applying for a bond as the bank will see from the pre-approval certificate that you can afford the property, making them more likely to grant a home loan.

How to get pre-approved

We provide a quick and easy way to get pre-approved with our free, online tool, the Bond Indicator.

Simply enter your financial information and the tool will assess it and produce results.

2. Offer to Purchase

The Offer to Purchase is the most important document in a home purchase. It lists the conditions that the buyer and seller must both fulfil in order for the purchase to go ahead.

The Offer to Purchase is a binding agreement

• Once you’ve signed it, you CANNOT get out of it without incurring significant penalties.
• Unless the buyer or seller fails to fulfil their obligations as stipulated in the agreement, then you have leeway to withdraw.
• Another scenario that allows for withdrawal is if the offer is less than R250 000. However, the buyer has to provide a written notification within 5 days of signing.

Read the Offer to Purchase carefully

• You need to understand your obligations.
• You need to include terms and conditions that protect you.
• You should seek advice on what you should include.

Examples of things the buyer should include:

• A requirement that the seller conduct a property inspection and fix patent defects.

Ensure that

• The description of the property is correct.
• Your details are correct.
• The agreed-upon price is correct.
• Make sure you want the property

Do a final check of the property before going ahead.

This is your last chance to ensure that it meets all your requirements.

You could ask neighbours about the location, such as how quiet it is, how safe it is, and whether it’s easy to get to business centres, hospitals etc

Make sure you can afford it

You DO NOT want to commit to the deal and then find that you can’t afford to repay the bond.

Make sure your finances are in order and that you’ve budgeted accordingly.

Be aware of the 72-hour clause

This clause allows the seller to continue marketing the property. If they receive a better offer, they have to give you 72 hours’ notice before they can accept it. If you fulfil your obligations within those 72 hours, the seller can’t accept the other offer.

Most sellers will refuse to remove this clause.

3. Document preparation

You will need the following documents when applying for a bond:

• A completed and signed application form.
• A copy of your ID document.
• Proof of residence.
• A copy of the Offer to Purchase containing both the seller and purchaser’s details (not necessary for pre-approval).
• Proof of income. You will need to provide a salary slip (not older than two months), or a letter from your employer with a breakdown of your salary and deductions. If you are self-employed then you will need a letter from an accounting officer confirming your income, or a statement of your assets and liabilities.
• Six months’ worth of bank statements.
• A copy of the marriage certificate (if married).

I’m confused as to what documents I need and how to prepare them

That’s why we recommend employing the services of an estate agent. They can advise you on the required documents and help you prepare them.

4. Submit the application

This is where a home loan comparison service such as ooba Home Loans can be invaluable.

We submit your application to multiple banks.

Banks have different lending criteria. Some may grant more favourable packages than others, especially since competition between banks is strong.

So if you submit your application to multiple banks, you’ll have multiple offers to compare and can choose the one that best suits you.

You can apply with ooba Home Loans here to secure the best deal on your bond.

5. Review offers

Factors to assess when comparing home loan offers:

• Interest rates: Interest rates determine what you will pay over and above the monthly repayments on your home loan. Some banks may offer lower interest rates than others.
• Home loan term: Most home loans have a 20-year term but it is possible to secure a 30-year term. This gives you more time to repay the home loan although it does mean higher repayments and interest.
  It’s up to you to determine the pros and cons of a shorter term vs a longer term. Either way, applying to multiple banks gives you a higher chance of securing the term you want.

6. Bond registration and transfer of property

You need to be aware of the additional costs you will pay on a home loan application, over and above the monthly repayments and interest.

Specifically, we refer to bond registration and transfer fees.

The bond registration and transfer of property process take place once the home loan is approved.

• Bond registration: The bank hires a cancellation attorney to cancel the original bond on the home, and a bond attorney to register the bond in your name. You will have to pay bond registration fees to the attorney.
• The title deed is registered at the Deeds Office during the bond registration process. The title deed contains all essential information about the property. The Deeds Office keeps the title deed until you have paid off your home loan, at which point they will give it to you.
  In the case where the title deed is held by the lender or bank, photocopies of the deed can be requested at any time by visiting the Deeds Office.
• Transfer of property: The home seller hires the transfer attorney / conveyancing attorney, but you will have to pay them the transfer fees. They transfer the property from the seller to you.
  In addition to transfer costs, you will have to pay transfer duty — a tax paid to SARS.
  Properties worth less than R1 100 000 are exempt from transfer duty.

How long will this take?

The transfer of property and bond registration process usually takes around three months.

How much will it cost me?

The cost depends on the cost of the home. The higher the amount paid for the home, the higher the transfer and bond registration costs.

We make this simple for you by providing a Transfer Cost Calculator. This will determine what you will likely pay on transfer and bond registration costs, including miscellaneous fees such as deeds office fees and petties.

How do I budget for all this?

It’s recommended to set aside 10% of the purchase price of the property for transfer costs and bond registration.

Important factors in home loan application

Now that we’ve provided an outline of the home loan application process, we thought it would be useful to examine two important factors in a home loan application; the deposit and your credit record.

The deposit

The deposit usually amounts to 10% of the property purchase.

Paying a higher deposit will cost you more upfront but significantly improves your chances of home loan approval, and will secure you lower interest rates.

You can use our Deposit Savings Calculator to provide a guideline as to how much you should set aside per month when saving for a deposit. This will help you budget effectively, and muster the funds for a deposit that gets you a better deal on your home loan.

Do I have a choice whether to pay a deposit or not? 

The need to appeal to first-time home buyers has made banks more open to granting 100% home loans (where no deposit is required).

Your credit record

Your credit record is the most important factor banks will assess when determining whether to grant your home loan application.

What is a good credit score in South Africa?

Your credit score will be a three-digit number ranging from 0 to 999.

You need a credit score of at least 610 for the bank to consider your home loan application, while anything above 661 is considered a decent credit score.

Here’s a more detailed breakdown:

• 781 to 850. Excellent.
• 661 to 780. Good.
• 610 to 660. Fair.
• 500 to 610. Poor.
• 300 to 499. Very poor.

How do I find out my credit record?

ooba Home Loans — South Africa’s leading home loan comparison service, makes this easy with their free, online prequalification tool, the Bond Indicator. You can use this to determine your credit score, as part of determining what you can afford on a home loan.

My home loan application was rejected because of a low credit record. What now?

Fear not. This is not the end.

First of all, you can take measures to improve your credit record.

Possible measures include:

• Check credit reports for errors.
• Pay outstanding debts.
• Reduce your credit ratio to below 30% (the credit ratio is the gap between the amount you owe and the limit to your credit affects your credit record).
• Settle and close accounts.
• Limit requests for new credit.
• Encourage your spouse to take the same measures.

How long before the changes take effect?

It usually takes around six months before changes to your credit record will show up. If you’ve taken the above measures, these changes will hopefully be positive, and you can reapply for a home loan.

Your best option: Apply to multiple banks

There’s another measure you can take. Apply to multiple banks with ooba Home Loans.

Some banks are more likely to approve your home loan application than others, even if you have a low credit record.

In summation: Bond application is simpler than you think

Using the above information, you can make the bond application process quick and easy, knowing exactly what to do in what order. Whether it be pre-approval, the Offer to Purchase, or credit records; we provide a one-stop location for all the info you need.

When you’re ready for application, apply with ooba Home Loans to secure the best deal on your bond. As mentioned above, we help you organise the paperwork, and submit your application to multiple banks, allowing you to compare interest rates, bond terms and other factors when choosing a package.