“With the increased competition from banks for new home loan business, there should be a much improved chance of being approved for a loan on favourable terms,” says Kay Geldenhuys, Head of Sales Fulfillment at South Africa’s largest bond originator ooba. “Banks are once again offering 100% loans and the current lower interest rates make it a better time for consumers looking to buy.”
Before you even apply for a loan, check whether the property is affordable, suggests Geldenhuys.
“Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties. A property finance consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements. Monthly repayment affordability is calculated on joint net surplus income after existing debt commitments and monthly living expenses have been taken into account. Other criteria, including the interest rate charged may affect the size of the loan that the bank will grant. Remember that the ‘hidden costs’ (transfer and bond registration fees) have to be paid upfront, and add a sizeable amount to the cost.”
One way to ensure that the loan you apply for will be granted is to get a prequalification. Companies such as ooba will, at no cost, prequalify you for a certain bond amount which takes the stress out of applying for a bond once you have decided on buying a property. An additional positive factor is that buyers who are prequalified are in a much stronger position to negotiate with sellers.
Check your credit record
Bond applications may be declined for several reasons: you may not be able to afford the monthly loan repayments, or may require a 100% loan that would push the repayments beyond your reach. Another critical consideration is your credit profile, says Geldenhuys.
“This includes your employment history and credit bureaux results, which provide a picture of your debt and payment history. If the bank considers you a good credit risk, it will assess the value of the property to be purchased. If this too meets all the relevant criteria, the loan is usually granted. The bond originator also motivates the merits of a particular loan application to the bank’s credit manager.”
To improve your credit record Geldenhuys suggests cancelling out-of-date credit cards and ensuring that you pay all instalments on existing debt by the due date every month.
Submit the correct information
To assist the bank in determining its risk, you will be required to provide personal information such as bank statements, salary slips, a statement of assets and liabilities, a statement of your monthly expenses and information on your employment and credit history, including whether you have ever been insolvent.
If you go through an originator, such as ooba, they will ensure you have all the correct paperwork to avoid unnecessary delays.
Get the best interest rate
The lower the bank’s risk in lending funds to a particular borrower, the better the rate it will offer that individual. In calculating its risk, it will consider factors such as the amount of equity you are willing to invest into the property, i.e. your deposit; the size of the loan; and the repayment-to-income ratio (the ratio between the bond repayment and your income).
The size of bond you apply for, your credit history and the investment value of the property you intend buying also affect the rate you will be offered. Shop around and negotiate with various banks to ensure you get the best package. A convenient way to do this is through the services of a bond originator who facilitates it all on your behalf as a free service.”
“While a deposit is not always required, try to put down 20% or more if you can, as the bank is more likely to offer you a better rate as the risk of the loan is reduced,” suggests Geldenhuys.
Use a bond originator
Finally, Geldenhuys suggests that consumers looking for the best deal on home loans should make use of a bond originator.
Bond originators specialise in shopping around between banks and negotiating the best deal for the customer for free.
“Obtaining an interest rate cut of just 0.25% can make a big difference to your monthly repayments. However, in negotiating the best package, the bond originator needs to take more than just the rate into account and will structure a package that best suits the individual’s needs overall.
South Africa’s leading home loan comparison service offers a range of home loan calculators to help people looking to buy a home determine what they can afford. Use ooba’s free, online prequalification tool, the ooba Bond Indicator, then, when you’re ready, you can get prequalified or apply for a home loan.