HERE’S TO MAKING AN INFORMED DECISION !

With the new Consumer Protection Act coming into effect on 1 April 2011, business sectors in all industries of trade have had to re-look their level of service, ensuring that they provide their clients or customers with all necessary information to aid them in making an ‘informed decision’. The use of plain language is especially important for this new Act, as often consumers don’t truly understand what they are binding themselves to.

Here’s a short-list of words that you might come across when applying for a home loan – the first step to buying your dream home – explained in plain language. The explanations below will make filling in your Application Form a breeze. That being said, the best way to ensure that your application form is filled in correctly, you can consult a mortgage consultant who will be able to take you through the procedure step by step.

APPLICATION TYPES

Individual – One person only is applying for a home loan that they will be paying for themselves

Multiple –  Larger groups of more than 2 people applying for a home loan

Private Company – (Pty) Ltd: A small company with few private shareholders apply for a home loan in the company’s name.

Public Company – A company which sells shares publically and has many shareholders applies for a home loan in the company’s name

Trust Company – A company formed to act as a trustee or to deal with trusts. A trust company does not own the assets its customers assign to its management, but it may assume some legal obligation to take care of assets on behalf of other parties.

Private Trust – An arrangement whereby property is managed by one person (or persons, or organizations) for the benefit of another. You may find this in Family Trusts. You can apply for a home loan in the name of your Family trust.

Surety – a person who assumes legal responsibility to pay for someone else’s debt should they become incapable of paying.

SOURCE OF INCOME

Donation/Gift/Winnings – If you have been lucky enough to win the lottery or receive a hefty cheque from your long gone uncle Scrooch, be sure to indicate this on your application form.

Inheritance – If you have received any funds passed on to you by a deceased family member, you need to indicate this on your application form by ticking the “inheritance” box

Investments – Do you have any investments that are regularly profitable? Tick this box if you receive money from investments

Pension – Over 65 and receiving pension every month? If you plan on using these funds to pay off a bond, you need to indicate so on your application form.

Policy – If you have a policy that pays out any funds to you on a regular basis, you can use it to pay towards a bond.

Salary – Most applicants will apply using the funds they receive from their salary which is normally paid on a monthly or fortnightly basis.

Offer to Purchase – An OTP is a formal document in which the buyer proposes to buy a property for a certain amount and under certain conditions. Once the seller accepts this proposal, a contract is created binding the buyer and seller to the conditions.

Documents required – When applying for credit, you will get asked to submit required documentation. Each person’s application differs but the basic required documentation remains the same for each applicant.

FICA

FICA is the Financial Intelligence Centre Act, 2001. The verification process for an individual investor includes obtaining the following documentation: Without these documents, your application will not be processed at all.

• A certified copy of your identification document
• Verification of your residential address through the provision of an certified/original copy of mail delivered to your residential address or a signed Affidavit from the owner of the property
• A cancelled bank cheque or a certified copy of your bank statements (6 months)

Property valuation – Once you have made an offer to purchase, the property needs to be valuated to determine whether the amount you have offered coincides with the value of the property. If the figures are synonymous, the Approval in Principle is drawn up.

Approval in Principal – After the property gets successfully valuated, the bank will deliver an Approval in Principal which will stipulate certain conditions including the loan amount and offered interest rate. You can now decide whether you would like to accept these conditions after which a Final Grant will be delivered.

Interest Rate – Currently, the Prime Interest Rate is 9%, the lowest it has been in over 10 years! Here’s what’s to keep in mind when it comes to Interest Rate.

Fixed Rate vs Variable Rate:

The interest rate on a fixed rate home loan does not change. This type of home loan is advantageous because you will be protected from rate increases and your monthly instalment will remain consistent. However, the disadvantage is that you will not benefit when the prime rate is dropping, which has been the case in the past few years. Also, a fixed rate will usually be slightly higher than the prime rate (at the moment of your application).

Final Grant

If you have accepted the conditions set out in the Approval in Principle, the Final Grant will be issued, which is the last step of your home loan application. Signing of the Final Grant binds you to the transaction and from here transports and registration of the property are handled by the chosen attorneys.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Buying and ‘bonding’ together

Aspirant buyers struggling to get mortgage bond approval might look at a co-ownership agreement with friends or family. The banks are quite happy to lend a hand.

Although bond applications in the first quarter of this year reached their highest level in 3 years, aspiring home owners are still struggling to get mortgages.

As a result, applying for a joint mortgage bond is becoming more of an attractive option for people trying to enter the residential property market. It is not unheard of for couples, whether husband and wife or about-to-be-weds applying for bonds, but the current trend goes beyond this – with friends grouping together to source finance and entering into joint ownership agreements.

Absa Bank’s home loans division says that it does not restrict the number of members.
Furthermore, the lending banks are looking favourably on such arrangements as an alternative to suretyships, under which recovery of debt in cases of default is often difficult. Now they prefer guarantors signing as co-owners.
In a recent poll conducted by mortgage originators, 38% of people surveyed believe that partnering with friends or relations to get a bond is a positive option. 36% of those surveyed were opposed to the option, feeling that it posed too much of a risk, and 26% believe that it should be considered but only if absolutely necessary.

Prime market for co-ownership is the first-time buyer, but it may also appeal to investor groups wishing to spread their risk. Those perceiving buy-to-let opportunities ahead as rents continue to rise are a case in point. Others thinking of taking the plunge into a coastal holiday home, where prices are at their lowest for years, may also view co-ownership with friends or family as a good bet.
However, there are some serious issues with which to contend – and a lot of ducks to be in a tidy row acceptable to the banks before a co-ownership mortgage is a proposition.
First and foremost is the need for all partners to be fully in agreement with the venture – percentage of co-ownerships, rental patterns if being shared; rates, taxes, levies and running costs/insurances and so on; letting contracts if the purchase is a buy-to-let venture; and a formal contract/partnership agreement, legally binding on all parties. The presence of a watertight contract will safeguard against default by any party.

The contract must cover such situations as the death of one or more co-owners, or if one of the partners experiences financial difficulties. Absa home loans also points out that the minimum legal age for ownership of land in SA is 21.

Ideally, the partners should have life policies with linked beneficiaries, similar to “key-man” policies in business practices. These will cover a partner’s share of the home loan if a death does occur.
Another important issue is the structure of an exit strategy – perhaps due to a partner’s changing circumstances – or even a marriage or divorce. Absa also stresses that if one or more partners in the co-ownership agreement wants out, the loan must be re-evaluated.

Meanwhile the number of mortgage bond applications in March was the highest level for nearly 3 years, reports Mortgage Plus. Nevertheless, they are still only 36% of the application volumes recorded at the peak of the market in May 2007 – which drives home just how the market has collapsed.

The welcome news is that the level of approved home loans also reached a high in March. According to ooba CEO Saul Geffen: “Ooba has experienced consistent month-on-month increases in application intake since the beginning of the year; we expect to see this growth continuing.”

According to other indicators, the average approved bond size increased 7,4% year-on-year. The average deposit as a percentage of purchase price fell 23,9% y/y to the equivalent of 15,6% of the purchase price.
The average decline ratio during March also fell – by 8,1% y/y from 52,8% to 44,7%. An additional positive indicator is that the effective overall approval rate continued to show a year-on-year increase of 5,6% to 64,5%.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za