Pre-approved Home Loans
Are you thinking of buying a home? Not sure where to start, then getting a pre-approved home loan is the answer. What a pre-approved loan does is help make the buying process a lot more efficient. The approval also helps you to know what you can afford and let’s the seller know that chances for qualifying for a home loan are high. The results will show all parties involved that you qualify for the financing needed for the home loan.
Anybody interested in buying a house can approach a lender, who will then check and verify your income and credit history, these lenders can then provide assurance that you are able to afford a specific loan amount. This can help you, as a buyer, know what loan amount is affordable, which makes it easier for you, as a buyer to look at property that fits your requirements. As a buyer, you don’t want to apply for a house and then be disappointed when it gets turned down. This could also narrow down the search for a house and make it easier for the estate agent to match their property listings to your requirements. The Estate Agent will know you are serious about buying a property and will therefore prefer working with clients who are prepared.
The seller will also be a lot more interested in somebody who can show that that are serious and that they have the approval to apply for a home loan. Just remember that getting pre-approval for a home loan, does not guarantee that you will get the financing for your new home. Now that you know you can get pre-approval, what are the steps to take? There are many online companies or lenders that can help you to get pre-approval, or you can search out a Mortgage Originator.
What is a Mortgage Originator?
A Mortgage Originator also known as a Bond Originator can help you find the best lender as well as broker the best deal for you. If you are new to the property market and dealing with such large investments and money, it is a good idea to get somebody on board who knows the ins and outs of all the processes needed to complete a successful property transaction. You as the buyer will then not have to deal directly with the lender. The Bond Originator acts as the middle man to help you secure the best home loan deal out there. The need for this type of service has increased over the years along with the increase in competitiveness amongst those offering loans. Many of these lenders provide a variety of attractive offers to attract potential customers. The first-time buyer can easily be overwhelmed with the choices available and land up choosing one of the options that least benefit them. By deciding to use a bond originator, you will have access to all their knowledge about home loans and other financial issues. The whole home or bond loan will also go through much faster when using the service of a bond originator.
Whether applying for a pre-approved home loan yourself or via a bond originator, there are certain requirements or documentation needed. Pre-approval can only have the go-ahead if the borrower provides certain information. This information will help you to determine if you will be able to pay the monthly bond or loan installments. Many of these bond originators are online, so you can easily apply for a bond loan in the comfort of your own home.
Pre-approved versus pre-qualified home loans
A pre-qualified home loan is regarded as the first step of the process. The pre-qualification does assess your income, assets, debt and credit but does not always require documental proof or verification. However, when you acquire a pre-approved home loan then the lender will require all necessary documentation and verification of your income, assets and debt. They will do a thorough credit check that will lead to an inquiry into your credit record. They will also confirm and verify your income. With this information they will be able to give you a pre-approval certificate or letter for a loan for a specific amount.
Pre-approved home loan requirements
- You will need to produce a three to six month pay slip or bank statement. This is your proof of income. This will also show your gross and net salary. You should also add any other additional income from other sources.
- This includes your IRP 5 form from your employer for the past two years.
- You need to have a good employment record as the lender will check with your employer to verify your job and income.
- Draw up a list of your expenses. If you have large amounts of debt, this could easily push up your interest rate.
- Documentation obviously includes a copy of your ID
- Make a list of all your current assets as well as liabilities, things like vehicle finance and other investments)
Being self-employed may add a bit of a challenge in gaining a pre-approved home loan as banks have certain strict rules they abide by. There is more to this process than giving in your proof of income. The bank will have a close look at your personal income as well as that of your business. Your business performance over the past three years will play a major role in securing your approval. The best way for a successful home loan pre-approval is to be prepared and have all your financial documentation ready.
Three main factors to look at regarding your business:
- You must show that your business has grown over the last three years
- What are your profit margins over these years
- The business cash flow should be clear
Credit check for your per-approved home loan
As with most loans, the lender or bond originator will have to do a credit check. They will investigate and gain information on how responsible you are in repayment of debts. This information will tell the lender if you are able to repay the home loan. This is important as the lender is running a risk when loaning you the money. The lender will make sure to look at things like:
- Have you paid back your debts in the past and have you done it on time
- How much debt do you currently have
- What your credit score is, this is calculated out as a number, which shows how likely you are to pay back your debt. Your credit history is taken into account to calculate your credit score. You want a higher credit score, which will increase your chances of getting the credit at acceptable rates.
- To check whether you have been black listed
What happens Next
Finally, you’ve been approved, the bank will now provide you with a quote. On this quote will be the information related to the pre-approved home loan. The quote will also mention your total bond amount, the interest rate added as well as your monthly installment fees. When you do find the perfect home and you want to go ahead with the final loan approval, it is important to note that the next step in the process involves other elements. This includes things like the bank’s property valuation, where the bank assessor evaluates the property involved. There should also be a signed offer to purchase
How long does a pre-approved home loan last?
Circumstances could affect your income and your finances, which could affect your repayments on your loan. This is why there is an expiry date on your pre-approved home loan certificate, which is normally about 90 days. So, you will have to find your dream home within this period or waist more time in reapplication. Getting your answer for your pre-approved home loan can take up to about two weeks but a pre-qualification home should have your results within 48 hours.
Some useful tips besides a pre-approval home loan
- While in the process of obtaining a pre-approved home loan and eventually completing the final loan, it is advisable to not take on additional debt, especially of a large amount. The banks regularly check credit profiles, which can carry on for over three months until the property registrations have gone through. This could also affect your credit profile and influence your interest rate on loan repayments.
- Any other significant financial changes should also be avoided.
- Today many of the banks grant 100% of the loan, but to successfully obtain the loan, you should ensure you have a substantial deposit that goes towards the loan. The deposit needs to be more than 10% of the value of the loan. You need to also prove that you have enough funds to cover all the mortgage costs. From the bank statements they will be able to ensure you have enough money for the monthly repayments of the loan, which must not exceed 30% of your gross income.
- If possible avoid changing jobs during the home loan approval process, as the bank would need to re-asses and this could take up a lot of time
- One tip for sellers, is to always check the date on the pre-approved home loan certificate.
More About Home Loans
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How to get Pre-Approval for a Home Loan in South Africa
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