Tips on how best to get a bond

With banks beginning to relax their lending policies supporting a revival in the property market now is the time to apply for a bond, advises South Africa's biggest mortgage originator, ooba.

"With the relaxation of lending policies there should be a much improved chance of being approved for a loan on favourable terms." says Kay Geldenhuys, property finance manager at ooba. "Banks are once again offering 100% loans and the current lower interest rates make it a better time for consumers looking to buy."

ooba's tips on getting that bond approval.

Checking 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 consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements. Monthly repayment affordability is generally calculated at 25 to 30 percent of joint gross income, but other criteria, including existing debt commitments, may affect the size of the loan that the bank will grant. Remember that the 'hidden costs' (transfer and bond registration fees) usually have to be paid upfront, and add a sizeable amount to the cost."

Get prequalified

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 consumer 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 mortgage originator also often 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 ensure 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 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 paper work 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 payment and the buyer's income).

The type 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 mortgage originator who facilitate 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 mortgage originator

Finally, Geldenhuys suggests that consumers looking for the best deal on home loans should make use of a mortgage originator.

Mortgage originators specialise in shopping around between banks and negotiating the best deal for the customer for free.

"Obtaining a preferential rate of just 0,1% below the prime rate can make a big difference to your monthly repayments. However, in negotiating the best package, the mortgage originator needs to take more than just the rate into account and will structure a package that best suits the individual's needs overall.

"With the property market beginning to perk up and banks loosening lending criteria as well as granting 100% loans, now is the best time in the last two years to apply for a bond," concludes Geldenhuys.

Hello ooba news

Prospective home buyers who obtain a prequalification certificate are doing so much more than just finding out how much they can afford to spend on a house.

"According to a recent poll conducted by bond originator ooba, three quarters of South African consumers are unaware of their credit profile.

"Many of South Africa's consumers with bad credit records are unable to secure home loan finance to enable them to buy property, according to ooba.

Although 100% home loans are being approved by banks in select cases, potential property owners are advised to save for mortgage deposits, due to the numerous economic benefits for prospective home owners in the long-term.

According to the Credit Bureau Monitor's 2010 4th quarter report only 53.3% (9.90 million) of the 18.51 million credit-active consumers in South Africa were classified as in good standing.