Buying a home is often the single biggest investment most people make. As a result it is essential for home buyers to ensure they are fully prepared before getting on to the property ladder. South Africa’s leading bond originators, answers ten questions  for new homebuyers to consider:

1.      How much can I afford to spend on a home?

Before you look for a home it is important to know exactly how much money you can borrow and, most importantly, what monthly repayments you can afford. Affordability should be used as the main factor in deciding the loan amount to apply for. Banks will generally be comfortable should you be able to prove that you have sufficient disposable income after tax and all your monthly expenses to meet the monthly home loan repayment. If the repayment on the property you are looking to buy requires you to cut your monthly expenses to unrealistic levels, your loan will likely not be approved. Your bond originator will be able to help you in calculating and determining what amount you should consider.

2.      Do I qualify for all the criteria that banks consider before awarding a loan?

Ensure that all your paperwork is ready for submission. Employment history is very important as it reflects a pattern of stability and income. For most lenders a consistent income stream is a key criterion when working out how much one can borrow. Lenders will also want to look at your credit history, so that they can see a historic pattern of borrowing and repayment as well as how you have managed you bank accounts and other credit facilities.

3.      Why should I consider a bond originator?

Bond originators specialise in shopping around with multiple banks to give you the best chance of getting your deal approved on the most beneficial terms. Banks all have very different criteria for assessing credit and in how they price loans, so the terms you obtain from one bank may be very different from another bank. The bond originator will work with you to ensure a home loan best suited to your individual needs.

4.      Will I benefit from being prequalified for a home loan?

When looking for a new home it is strongly advisable that you are pre-qualified to give you a good sense as to the value of the property that you will be able to purchase.  The pre-qualification process can also pick up credit issues on your record that would need to be fixed before you can formally apply to a bank. The pre-qualification process not only streamlines the home buying process, but also ensures the buyer is able to negotiate from a position of strength. Ask your estate agent or your bond originator to assist you with the pre-qualification process.

5.      In addition to the monthly repayments, can I afford the additional costs?

Make sure you are aware of all the costs involved in buying a home. In addition to arranging a home loan and potentially putting down a deposit there are a number of other costs involved including legal costs, transfer duty, bond registration fees and bank charges. These fees can stack up quickly and they have to be paid in order to complete the process.  Over and above these ensure you have taken into account all the costs of home ownership including your monthly rates, levies and costs of insuring your home.

6.      How can I get the best interest rate?

The lower the bank’s risk in lending funds to a consumer, the better the rate it will be able to offer. In calculating the risk, 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 re-payment and the buyer’s income) are considered. Currently the size of the deposit is a key factor driving the rate at which banks are prepared to do business.  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 may affect the rate you will be offered.

7.       Consider fixed interest rate options.

With interest rates currently at 35 year lows, one may want to give consideration to fixing the interest rate on your home loan when you apply for a bond. Lenders will often set a fixed rate bond at a slightly higher level than a variable rate bond; however, if you are working to a tight monthly budget, a fixed rate option removes risk and might be a prudent decision.

8.      Can I afford to put a deposit down?

Besides improving your chances of getting your home loan approved, a deposit will 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. 100% loans are available, but the credit criteria imposed on 100% loans are very restrictive, and our advice would be to put down as large a deposit as you possibly can to ensure the best chance of home loan approval.

9.      Consider the location of the property

The old adage of location, location, location still rings true for most South African homebuyers. Buying in the right area now can reap dividends in the long term when you choose to sell the property. It is important to get some idea of what the area you are looking to buy in may look like ten years down the line, as the demographics of an area can change relatively quickly.

10.     Be Transparent

Always be completely transparent with your lender or bond originator. If you do not provide all the relevant information, likelihood is that the bank will pick it up and decline your loan. “Full disclosure” should be your mantra. Work with your estate agent and chosen bond originator to ensure that the property you are looking for is one that you can afford.

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

In a depressed market, such as the one we are currently in, many people ask themselves whether it is more financially prudent to buy their own home or to rent one instead.

“While the level of South Africans who now own their property has risen dramatically over the last decade, with the ever increasing cost of living coupled with high personal debt-to-income ratios, many South Africans are purposefully selling their homes in order to downgrade their lifestyle to more affordable levels,” says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Goslett says that this has resulted in the need for many people to rent instead of buying a home. Rentals are also being fuelled by the fact that house prices remain relatively high when compared to earnings, the banks’ lending criteria remains strict and deposits are still required. “All these factors combined have meant that the move towards renting is gaining an ever increasing momentum.”

The great news for buy-to-let investors is that the ‘renting trend’ is one that is not only growing in South Africa, but also in other countries around the world. In fact, says Goslett, it is expected that in the UK, the percentage of people who will be renting instead of buying their homes will grow by as much as 20%, while in countries such as Germany for example, over two thirds of the population do not own their own home.

Although this rental trend may seem high, says Goslett, the reality is that in many cases, renting is much more affordable than buying. “Renting lowers your financial risk. In the current market, houses are difficult to sell and renting is much less of a risky proposal should you lose your job and suddenly have the need to downgrade to a less expensive property.

“Renting also gives you the freedom to be able to relocate to a new city for a job, and when you compare apples with apples, you could probably afford to rent a home equal to, if not better than what you could afford to buy.”

However, he says that the number one argument for renting lies in the fact that there are other kinds of investments that will offer a much higher return. “The theory goes like this – investing in property can be an expensive exercise when you take the costs involved in buying a property such as the transfer duty, bond registration fees and other legal fees, connection fees and moving fees. You also pay interest on a bond, and don’t forget the rates and taxes, the maintenance and insurance costs and the costs for the general upkeep of the property.

“Add all these expenses together, as well as the difference between the rent you would pay versus what you would have to spend on your monthly home loan instalment, and this would leave you with a sizeable amount of money.”

If you are disciplined enough to save and invest this money, says Goslett, it is estimated that you should be able to save enough money to buy a home cash over a period of 10 or so years, use it to reinvest in other avenues, or keep it as a nest egg for retirement purposes.

However, therein lies the crux of the matter – this kind of financial thesis is exclusively for the disciplined investor. “Unfortunately, most people do not have the required restraint to do this – if they have extra money, most people just end up increasing their living standards by buying more expensive cars, going on better holidays, or buying luxury goods for themselves or their home.”

Goslett says that the big argument for buying a home instead of renting one is that owning your own home is a forced kind of saving. “The truth is most South Africans do not save enough money for when they are older. However, being able to sell your home that you paid off over 20 years, and downsizing to a smaller dwelling will no doubt offer welcome financial relief when it is needed most. What would these people do if they had decided to rent 20 years ago?”

In order to benefit from buying property, Goslett advises that consumers get into the property market as early as possible. “The earlier you start, the better off you will be. Also, keep in mind that any 20-year bond repayment will come down dramatically in real terms as your salary increases with inflation (assuming there are no drastic changes in the interest rates). This means that even though you might have to tighten your belt to ensure you have enough money for the monthly payments when you initially start, they will become much more affordable as time goes on.”

Goslett says the key to successful property investment is to pay off your bond as soon as you can, live in your home for a minimum of five years so that you can recoup some of the initial costs, and to buy only what you can afford.

But, he says, there are both pros and cons to renting a property as well as for buying one. “Everyone has different criteria and levels of affordability.  Renting can allow you to suss out an area or complex to make sure you like it before you make a long term commitment, or to allow you time to save up for a deposit. On the other hand, the sooner you can start paying off your own bond, the better off you will be with an asset to your name that will certainly show good returns over the long term.”

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