“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 Fulfilment at South Africa’s largest home loan comparison service ooba home loans. “Banks are once again offering loans of 100% with some banks even willing to finance the transfer and bond costs, which, with the current lower interest rates, makes it a better time for consumers looking to buy.”
Check your affordability
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 specialist 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 costs and fees) have to be paid upfront, and add a sizeable amount to the cost if the bank is not willing to finance these costs.”
One way to ensure that the loan you apply for will be granted is to get a prequalification. Experts at companies such as ooba home loans will, at no cost, prequalify you for a certain bond amount, depending on what you can realistically afford, or you can use their free, online DIY prequalification tool, the Bond Indicator. This takes some of 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. For example, you may not be able to afford the monthly loan repayments. Another critical consideration is your credit profile, says Geldenhuys.
“This includes your credit bureau 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 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 a home loan comparison service, such as ooba home loans, they will ensure you have all the correct paperwork to avoid unnecessary delays, and will submit a single application to all of the banks on your behalf.
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 in 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 home loan comparison service who facilitates it all on your behalf as a free service.”
“While a deposit is not always required, try to put down 10% 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 home loan comparison service
Finally, Geldenhuys suggests that consumers looking for the best deal on home loans should make use of a home loan comparison service that specialises in shopping around between banks and negotiating the best deal for the home buyer, 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 home loan comparison service needs to take more than just the rate into account and will structure a package that best suits the individual’s needs overall.
ooba home loans can fulfil this role, applying to multiple banks on your behalf and securing the best deal in the process. They also offer a range of tools that make the process easier. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.