First time buyers’ FAQs

With the recovery in the residential property market looking set to continue, an increasing number of potential first time buyers are considering making what will be the largest purchase of their lives so far.

Craig Deats, provides answers to some of the most commonly asked questions by these first-time buyers:

How much can I afford? – Affordability Calculator

As a first-time home buyer it is important to know exactly how much money you can borrow for your new home and, most importantly, what monthly repayments you can afford. One should use affordability as the main factor in deciding the loan amount to apply for. Your bond originator will help you in calculating and determining what you can afford.

Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties. Make sure that you are aware of all the costs involved in buying a home. In addition to paying a deposit there are a number of other upfront costs involved such as legal costs, transfer duty, bond registration fees and bank fees. These costs all need to be budgeted for.

What criteria do the banks use to award home loans? – Documentation Required by Mortgage Plus

The main reasons for bond applications being declined are affordability and credit profile.Prior to the NCA affordability was a simple calculation based on 30 percent of income. Affordability is now based on net disposable income and for most people this means access to less credit than would have been the case in the past.A clean credit history and being up to date on all debt instalment payments is important.  Additional factors that banks look at would include:

• Your current financial situation.
• Whether or not your financial situation will change in the next few years.
• If your income is steady or fluctuating.

It is advisable that you shop around with multiple lenders. According to the latest statistics, 29.4 percent of applications in July 2010 that were declined by one lender were approved by another, indicating that it is important to approach multiple lenders to ensure a positive outcome on your home loan. Shopping around also ensures that you get the best rate on offer.

What information do I need to submit to the bank?

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 as well as information on your credit history, including whether you have ever been insolvent.

How can I 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 the individual.In calculating its risk, it will include factors such as the loan-to-value ratio (the amount of deposit you are willing to put down to offset against the purchase price thus reducing the required loan amount), the size of the loan as well as the repayment-to-income ratio (the ratio between the bond payment and the buyer’s income).

The size of the bond that you apply for, your credit history and the investment value of the property you intend buying are some of the factors that 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 bond originator.

Should I fix my interest rate?

If you are working to a tight monthly budget, and you can afford to, it might be prudent to fix your rate now even though fixed rates are usually higher than variable rates.

Many people make the mistake of waiting for rates to rise before locking themselves into a fixed rate. Before buying a property, stress test your budget to ensure you will still be able to meet your mortgage repayments if rates start to rise.

How can I calculate the transfer and registration costs? – Pre approval and Bond Cost Calculator

Calculators like the one found on the Mortgage Plus website (www.mortgagepluscc.co.za) will help you determine the exact costs involved and will enable you to work out your future repayments if rates increase.It’s advisable to try and make your budget stretch to cover an interest rate hike of three hundred points above your initial variable rate.

What deposit should I put down?

Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate which will save you in interest over the term of the loan. As a home loan is paid back over a long period, generally between 20 and 25 years, even a small deduction in the interest rate on your bond can save you thousands in interest payments over time.

How can I bring down my monthly repayments?

The less you owe the smaller your monthly loan repayments will be, so put down as big a deposit as you can afford. Never miss an opportunity to pay extra funds into your bond, such as your 13^th cheque, share payouts, tax refunds and bonuses. Paying in even small amounts over and above your normal repayment can knock years off the term of the loan and substantially reduce the interest payable.

Should I use a bond originator?

Bond originators specialise in shopping around with multiple banks and negotiating the best deal for the customer. Obtaining a preferential rate of just 0.1 percent below the prime rate can make a big difference to your monthly repayments.

However, in negotiating the best package, the bond originator needs to take more than just the rate into account and will structure a package that best suits the individual’s needs overall. To secure a competitive rate, the originator maintains relationships with several different banks, enabling him to compare their offerings, make a recommendation to the client and then obtain fast approval of the loan.

The service offered by an originator includes facilitating bond negotiations with all major lenders in one simple process from prequalification to registration – with less hassle and minimal paperwork. The originator will also provide regular feedback of progress on your application. The service is free to homebuyers. Bond originators already source over 60 percent of all new home loans in South Africa.

Remember by choosing us for a loan, you will get professional advice to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

How much can I borrow for a mortgage?
One of the first question everyone asks when they are thinking of buying a property is ‘how much can I borrow?’ This is not an exact science and all banks have methods to calculate affordability. Since the introduction of the National Credit Act this has become even more complicated. The most accurate method of establishing how much you are eligible to borrow is to contact a qualified mortgage broker.

Salary Multiples
A mortgage lender will lend you money based upon what they think you can afford to repay on a monthly basis. The calculation they used to use is broadly that 30% of your gross monthly income must be your maximum monthly mortgage repayment. Therefore if you earn R20,000 per month gross then your maximum repayments should be R7,000.

Under the National Credit Act, lenders now have to base your eligibility calculations on your monthly ‘disposable income’. To calculate this you need to take your gross income, less all the deductions like tax and UIF to get your Net income. They then calculate what your total monthly expenses are; groceries, car insurance etc, and finally they subtract all you month commitments to any existing debt you have such as credit card, vehicle finance, or loan repayments. The balance (if there is one) is your maximum monthly mortgage repayment.

The banks normally add in a ‘buffer’ for interest rate rises etc, so you may actually only qualify for 85% of this figure. You then need to work backward to get the actually bond amount these monthly payments will allow you to service.

A lender will look at your bank statements and your regular outgoings to check that the expenses you have declared are in line with your outgoings on your bank account. They also have access to the Credit Bureau’s information so they can check that the liabilities that you have declared are correct. If you run a tight ship with regard to your finances, you may be able to get a bigger mortgage than you would do under the traditional salary multiple guidelines. Conversely, if you’re already ‘maxed out’ with credit cards and personal loans, you may not get offered as much.

The National Credit Act (NCA) means lenders will be tightening their credit policy so as not to fall foul of the ‘reckless lending’ as laid out in the Act. This will not only mean that lenders will start using individuals net income for their calculations, but also they will look specifically at what other borrowings the applicant may have before they make a decisions on the applicants borrowing eligibility.

For a quick check to see how much you are eligible for please go to our mortgage calculators. The various lenders do vary in how much they will lend you depending on their individuals assessment of your risk.
Other income

Other Income
Lenders will take into account other income that you may have such as rental income, investment and dividends etc. Again, lenders do vary in how they view secondary income streams. Therefore you should always speak to your Mortgage Plus consultant to assess your full range of options.

As a rule of thumb lenders will take into account 50% of your rental income on a rental property. It is up to you as the borrower to prove this income. You must be able to show money going into your bank account and lease agreements. The longer the lease, the more they will value the rental income.

You can also take into account ‘contributions’ from other family members if they are living in your property. If a partner, or child is making a contribution to the ‘family finances’ then the banks will use it. Again, the onus is on you as the borrower to prove this.

Commission earner
If you are a commission earner the banks will take this into account. However, the best way to prove this to the bank is to provide six months payslips and calculate the average commission earnt.

Annual bonuses
These can also be taken into account but you will have to prove them with entries on your bank statements and letters from your employer.

Self-employed individuals
It is harder for banks to lend to self-employed individuals because it is often harder to prove the income. The better you manage your accounts (and the more accurately) the easier it is for the banks to lend to you. Proof of your income will have to be provided in the form of Audited Financial Statements, latest management accounts and six months bank statements, as well as a letter from your accountant verifying your income.

Partners / Spouse’s income
If you are purchasing with a partner or spouse then lenders will take their income into account.

Note: Remember that banks want to lend money. That is how they make money. The banks have come under considerable pressure since the introduction of the National Credit Act not to ‘lend recklessly’. Make it easy for a lender to grant you a loan by managing and recording your finances carefully.

By choosing Mortgage Plus for a loan, you will get that continual service to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za