In the past if you wanted a home loan you had to go to your bank and make an appointment to see a staff member of the bank’s home loan department. You would then be given a home loan application to take home to complete and return with all the required documentation. Once the paperwork were received by the bank you had to patiently wait for the outcome of your application. Today the whole process of applying for a home loan is made much easier with mortgage originators who will send the documents to the various banks and negotiate the best deals on your behalf. In fact the whole home loan application process can be carried out without you having to leave the comfort of your home.
Your mortgage originator will be able to tell you of all the options that the various banks can offer you. Because the home loan application form must be completed very accurately the mortgage originator will help you with the technical information required such as the details of the property you are purchasing. They will let you know if your home loan has been granted and the bank will then send out a building inspector to value the property.
When you apply for a home loan in South Africa their are a variety of documentation that is required to back up your apllication. You will need to include a copy of the front page of your identity document and if you are married a copy of your marriage certificate as well as Antenuptial Contract. If you are divorced, the bank will require a copy of the divorce order. Applicants that are not South African citizens will need to provide proof that they are entitled to purchase property in South Africa. If you choose not to use the bank’s personal life assurance facilities, you need to provide proof of the alternative policies you have. The bank needs this to ensure that the home loan will be settled in full if you should pass away while the bond is still outstanding.
If you want a home loan registered in the name of a Close Corporation or Family Trust the banks will require some additional documentation. You will have to include a copy of your registered Founding Statement (for a CC) or Letter of Authority (for a Trust). If you have to sign as surety for your CC or Trust, or if some other suretyship is required, the surety document will be drawn by the bank’s conveyancer who will get you to sign it with your bond documents. If you work for a Government Department or company from which the bank requires collateral security, you will have to personally arrange this yourself.
After your home loan application has been approved the necessary bond documents need to be registered. You will meet with the attorneys where all the required documentation will be signed. You will be required to sign a Power of Attorney with the bond document attached, a Debit Order to secure your monthly repayments (a mandatory requirement by most banks these days), authority to pay forms which will authorize the bank to disburse the amount of the loan, the bank’s standard mortgage loan agreement, any specific conditions of the home loan it may have as well as any other required documents such as insurance applications and suretyships.
How much should you take a home loan for? Generally the banks will give you a home loan around 20 times of your monthly gross income but should you take the full amount that you are entitled to? Here are a few points to consider before deciding on the amount of your home loan.
Before deciding on the amount for your home loan look at the possibility that your monthly income may fluctuate in the future. It is unlikely that your salary will decrease but you might be placed in an unfortunate position where you are retrenched and have to take a new job with a possible lower starting salary. If you are self-employed or work on a commission basis you may go through periods where your income may be substantially less than usual and this should be kept in mind when deciding on the amount of your home loan.
Unless you have a home loan that has a fixed interest rate for a certain period, your home loan may be subject to future interest rate increases. The vast majority of bond foreclosures occur during times when interest rates are high and monthly installments become unmanageable. Consider taking a lesser amount on your home loan than what you can currently afford to cover for possible future interest rate increases.
Your expenses may also be much more in the future. Account for future expenses such as school fees and university education for your children, repairs to your home and vehicles as well as increases in levies or rates. All these points make a good argument for taking out your home loan for an amount less than you can currently afford and thereby covering for future fluctuations in your financial standing.
Even though property prices have soared in recent years, you can probably still obtain a home loan to buy your own home if you are earning a regular salary. Here are some ways that you can get that home loan you need to become a home owner without needing an excessively high income.
Look For Special Home Loan Deals
Keep an eye out for special deals offered on home loans by the various banks in South Africa. There are good home loan products specially designed for first time home buyers who do not have huge incomes or cash on hand to pay deposits on the home loans. Always try and negotiate with the bank on a better interest rate as even a small decrease on your interest rate can make quite a large difference on your monthly repayments. For a family on a tight budget even a R100 less per month spend on your bond can make a big difference.
You can often bargain with a home seller to get the price down to something that you are more able to afford so do not just accept the first offer as something you cannot afford. Also keep in mind that many of the cheaper properties are not always advertised so drive around in your area and look out for the “For Sale” signs in front of houses. Do this especially on sundays as this is the day most sellers choose to place their homes on show.
Increase Your Home Loan Repayment Period
You do not have to take your home loan over a 20-year period but you could stretch it over a 30-year period. This will cause your monthly repayments on the home loan to be lower which will allow you to afford a higher loan amount. On the negative side this kind of home loan will cost you more over the long run in the form of the interest you will pay.
Get a Joint Home Loan
If you cant afford a home loan on your own salary consider buying a home with a partner. Instead of looking at your personal income as a measure for calculating an amount you can afford on a home loan, banks will look at the joint gross income of the two partners buying property together. If your gross income is R4000 and that of the partner is R8000 the bank will calculate the amount that you jointly qualify for on the combined R12000 income. The bank usually will not give a home loan on more than 30% of the gross income so jointly you should be able to get a loan for R400000. If you decide to take this option make sure that you sign a legal agreement with the partner on the amount each will pay on the repayments of the home loan and how the proceeds should be spilt when the home is sold in the future.
Enter The Market With a Lower Value Home
A common mistake prospective home buyers make, especially first time buyers, are that of aiming to high. Only for a hand full of people will their first home be their dream home. It helps to get into the property market first with a lower value home and after a few years, with the increase in value of your property and promotions in your job, you will be able to afford a better home.
You are excited to buy your new property and found your ideal home. But the excitement quickly turns to disappointment when your home loan application gets rejected by the bank. In this article I will highlight a few reasons why home loan applications are turned down.
Gross income too low to afford the property
The qualification figure for a home loan is 25 to 30 percent of the joint gross income of the applicants; if the monthly repayments exceeds this figure the home loan application will not be approved. As property prices have been increasing it has become more and more difficult to qualify for a home loan in South Africa with this criteria.
Home loan applicant’s credit profile
The applicant’s credit profile is an important consideration for banks when they consider the home loan application for approval. The bank uses a scoring model which takes into account the current income, employment history, consumer bureau results and applicant’s performance with the bank itself. A poor scoring in one or more of these factors may lead to the home loan application being turned down.
Home loan applicant’s payment history
Your payment history across a variety of recorded transactions will be scrutinized by the bank before your home loan is approved. Skipped payments on motor vehicles, furniture, clothing and professional services as well as any other bad debts may contribute towards your home loan application being turned down.
No deposit available
If you cannot afford the deposit or the registration costs up front you will have to apply for a 100 percent home loan. A 100 percent home loan could push the monthly payments beyond what you can afford to pay monthly.
Physical assessment of the property
The bank will make a physical assessment of the property before the home loan is approved. The condition of the property, location, security and demand for property in the area will be considered and a severe shortcoming in one or more of these areas could also lead to the home loan application being rejected.
If you applied for a home loan and the bank rejected it, found out on which criteria you failed. If you believe that the loan was unfairly turned down raise the issue with the bank or work on the areas that you can improve before applying for a home loan again.