Lenders will take the following into account with every mortgage application.

INCOME

When applying for a mortgage, lenders will look at your total income before any deductions (gross income) to access if you would be able to afford the mortgage payments. Lenders will consider the following as income:

-Salaries & Wages
-Regular Incentives
-Investment Income
-Retirement Income
-Regular Commissions
-Rental Income

CREDIT HISTORY

To qualify for a mortgage it is vital that you a satisfactory record of paying all your accounts on time. This can affect your credit score substantially. A credit score is a summary of a number of positive and negative factors, such as the information on your credit report that aims to predict how likely you are to honor your credit commitments in future. This rating is often used by lenders to identify the risk in offering you credit.

If you experienced problems in the past, and if you have a good explanation it can be taken into account. Make use of an experienced mortgage broker to assist you when applying for a mortgage.

TOTAL DEBT

The amount of debt you have will play a significant role in qualifying for a mortgage. Most South Africans have debt in the form credit cards, store cards, personal loans etc. As a rule of thumb lenders require that the total off all your monthly debt payments may not exceed 80%-85% (depending on the lender) of your nett income.

MORTGAGE QUALIFICATION CRITERIA

Before the introduction of the New Credit Act (NCA) lenders used the 30% rule as qualifying criteria. Now, after implementation on 1 June 2007, you have to qualify on affordability. In other words, they will look at your NETT salary, and deduct all your monthly expenses to ensure you can still afford this amount.

If you already own property and would like to apply for additional finance on your home loan, the same rule applies. One advantage, though, is if you will be consolidating debt, because some banks will take into account the debt you will be settling and looking at your improved cash flow when calculating your affordability.

PROPERTY VALUATION

Your lender will do a valuation on the home to determine its value, before granting a mortgage.

The value of the property must be in line with the purchase price. If this is not the case, the bank may approve a lower bond amount.

If you’re already own property and would like to apply for additional finance on your home loan, you need to have sufficient equity in the property to qualify. Equity is calculated by taking the market value of the property and deducting what you owe. This difference is the equity. In certain suburbs the banks will allow you to apply up to the full value of the property.

To apply for a loan you will have to fill out a short application form. You will then receive a FREE quote from well established, nationally recognized lenders. You do not need to decide now whether the loan is for you.

Just apply and compare the repayments to your current situation. There is no obligation on your part. If you decide that it is not for you, you simply do not have to accept the offer. You have nothing to lose and everything to gain.

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Hidden Costs in a Mortgage

Most every loan is going to have associated with it fees for insurance, valuation, etc. Most of these fees are commonly required amongst all lenders and they must give you a list of their costs associated with a mortgage. Despite the fact that the costs are disclosed, some lenders may include extraordinary “junk” fees in their costs that an unwary buyer may not recognize as an extra fee. At the time of a loan application lenders are required to give you a written closing cost estimate.

First, determine if you’re rate are being loaded. Some lenders advertise artificially low rates to attract customers but load up on fees to compensate for a lower rate. A tip off to a lender that charges hidden fees would be a lender who advertises interest rates that are appreciably lower than the competition. Interest rates are very competitive and shopping for the very best rate may in fact work to your disadvantage. Differences in rates of 1/8^th or 1/4^th of a percent result in very little difference in a payment and may be offset by poor service and added hidden fees.

Mortgage companies and fees. Mortgage companies often advertise that through their intervention the financial institution will subsidize the client’s bond registration fees. But, at what cost to the client? Saving R2 000 for example in bond registration fees, but ending up paying R200 000 more in interest is a great deal for the bank, but not for the client.

Mortgage companies are often owned by a bank or an estate agency. The real issue is a serious lack of independence and conflict of interest. Clients have no guarantee that their mortgage application will be channeled to the lender that offers the best interest rate instead of to the one offering the broker the highest commission. These fees will be subsidized by the banks customers in the form of higher charges and higher interest rates.

Always work with an mortgage firm that is independent from any bank and who’s services are FREE and without any premiums attached to the client like Mortgage Plus.

Correcting Past Credit Problems

Contrary to what you may have heard, credit reports are for the most part accurate. Common last names and a “Jnr.” in the family does cause a few problems but credit reports identify people by their identity number, address, and name. If you have an issue with your credit report, credit-reporting agencies are required to attempt to resolve the problem. Most of the information has to be provided by the individual and they should stay in touch for as long as it takes, frustrating or not. There are two main credit repositories in South Africa: Trans Union, and Experian. These companies each hold a database of information and provide it to a more local credit-reporting agency that may actually be issuing the report. If you have a dispute, you can go direct to the two repositories to attempt to clear the issue.

As mentioned before, credit scores in the 500 range can cause problems when attempting to obtain new credit. You can raise your score if the original information was incorrect, or you can over time improve your payment history, but it may take a few years of diligent payments to appreciably raise your credit score.

If worse comes to worse declaring bankruptcy  may be your only answer, but despite its growing popularity, I recommend it only as a very last resort. A bankruptcy will stay on your record for years and make obtaining credit difficult. There are two methods to declare bankruptcy: Voluntary and Compulsory Insolvency (bankruptcy). If your creditors have you sequestrated, this is known as compulsory sequestration. If, however, you decide to have yourself declared insolvent, such act is referred to as voluntary sequestration.

Should you not have yourself declared insolvent, but wait for your creditors to take the necessary action, there is a possibility that they will not succeed in their application for a court order. It may no longer be in their interest, on account of the fact that your assets are worth too little to them.

In the absence of compulsory sequestration, your debt simply increases further (as a result of interest), and your financial suffering is aggravated and endures for longer. The descriptions above are overly simple and general, but the bankruptcy option is a poor one and you should explore your options with an attorney before making a decision. After a period of time a rehabilitated insolvent may apply for credit, but this will depend on numerous factors. Most lenders state that at least a year must pass after a person’s been rehabilitated and a new good credit history must be established. A difficult chore, but it can be done. Make sure that rent or mortgage payments have no late payments for at least the previous 12 months. Avoid paying in cash; make all payments by check or credit card where your payment history can later be verified. It will also help to explain to your lender that the situation that originally caused the problem, a job loss, illness, etc., has now been resolved.

To learn more or if you’re interested in getting a loan, or are worried about debt, make an enquiry with Mortgage Plus at www.mortgagepluscc.co.za or call (011)327-4489 / morne@mortgagepluscc.co.za