6 Tips for a successful mortgage application

As a young South African, buying property might not be at the forefront of your mind but with interest rates in South Africa relatively low and property prices at a realistic level compared to the recent boom, now is a great time to get onto the property ladder. And with banks granting first time home owners mortgages of up to 104%, you don’t need to spend years saving for a deposit.

When the time does come for you to apply for a mortgage, you don’t want to find out that you aren’t eligible because of a low or non-existent credit score. A bit of preparation can pay off in the long run and you should start considering what you can do now to make your mortgage application easier when you want to buy.

Make debt

A good credit rating is one of the most important factors in having a mortgage approved to finance a property. The only way to get a credit rating, ironically, is to have debt. Your overall credit rating is calculated according to a number of factors with different weightings, resulting in a score of between 300 and 800. As a general rule of thumb, your credit rating needs to be at least 640 for the banks to consider you credit-worthy and a low risk.

Then manage it well

Before you rush out and spend on credit, banks also want to see evidence that you can manage your debts well and pay them on time. So much so that the payment history on pre-existing loan accounts contributes 35% of your overall credit score and outstanding amounts owed contributes 30%.
Remember though that it is not only “formal” loans such as store cards, credit cards, student loans and car loans that contribute to your credit history. Not paying other bills such as traffic fines can also have a negative impact on your credit score.

Don’t wait, act now

Other factors that affect your credit rating are the length of your credit history, new credit accessed and the type of credit involved.
So, before buying a property, you should carefully build a good credit history by accessing appropriate debt and then managing it well.

Credit card conscious

One good way to do this is to use your credit card for expenses but then pay off the balance at the end of every month to avoid being charged interest. Another credit card-related tip is to never use more than 50% of the amount you have available to you. If you are constantly reaching your limit, this shows the bank that you are living right on the edge of your income.

Get a full-time job

Banks will insist the lender has been employed for at least a year, and will ask to see three months of salary slips, or six months of bank statements if you are self-employed.

Sooner rather than later

Property is a fixed asset that can grow substantially in value, so it can provide an important foundation for financial security in future. So, while the thought of a 20-year financial commitment might seem overwhelming to many young adults, especially if you have just achieved financial independence, there are many good reasons to get on the property ladder sooner rather than later.

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 property: offer to purchase

You have done your research and checked your credit rating, gone house hunting and found the home of your dreams – now what? It is time to fill out the paperwork and make an Offer to Purchase. For many home buyers this may be a daunting task and the ins and outs of making an offer could be vague.

Adrian Goslett says, fundamentally, an Offer to Purchase is an agreement that contains the terms and conditions of the property transaction. “The terms and conditions must be agreed upon by the buyer and seller of the property on a number of issues before the document is signed. Everything that is agreed upon by both parties must be listed in the Offer to Purchase document.”

Goslett says the Offer to Purchase must contain in writing all the terms on which the parties have agreed. This should cover things such as the date of occupation, occupational rent, fixtures and fittings and the conditions of sale. Once the Offer to Purchase has been concluded and signed by both parties it will become the Deed of Sale on that property.

The more specific an Offer to Purchase is the better. If all aspects of the sale have been covered and written into the document, he says, there will be very little room for either the buyer or seller to negate anything at a later stage.

“For example, certain curtains or furniture may have been specifically manufactured for that particular home, so it would make sense for the seller to include those items with the home. However, if those items are not listed in the Offer to Purchase, the seller has no obligation to leave them.

“If the document is particular in its detail, there is less confusion down the line on what was promised and what was not,” says Goslett.

It is important that both parties agree on what stays in the home and what goes with the previous owner. As a general rule, anything that is nailed, glued or screwed down has to stay and everything else can go.

In some cases buyers may make an Offer to Purchase while they currently own an existing property or it may be made subject to the buyer obtaining the necessary finance.  In these instances, the Offer to Purchase may include a suspensive condition that the sale is subject to the bond approval or the buyer’s current property being sold. While the bond approval condition usually includes a time limit of seven to 10 working days, the time limit for the buyer to sell his home has to be agreed upon. Once the buyer has received confirmation that the mortgage has been approved or that his home has been sold, he must notify the agent immediately to ensure that the offer becomes unconditional. This is a vital part of any property transaction, because if the Offer to Purchase falls through, the entire agreement will become null and void.

According to Goslett an important aspect that should be covered in the Offer to Purchase is the date of occupation. This is the date that the property will be vacated by the seller so that the buyer can take occupation. It is essential to clarify this date so that both parties can make the necessary moving arrangements. The date of occupation will have a bearing on whether the buyer will have to pay occupational rent. This is the rent that is paid to the seller by the buyer if they have taken occupation before the property has been registered in the new buyer’s name.

Goslett says that this works both ways, in that if a seller has to stay in the home after the home has been registered, he would have to then pay occupational rent to the new buyer. This rental price can be agreed on by both parties with the help of an agent.

He says that buyers need to be absolutely happy before they conclude the Offer to Purchase, because once it has been signed and accepted by the seller, they will be contractually obligated to that transaction. Buyers must read each section of the contract carefully and make sure that they fully understand what the document is saying. If they are unsure of any clause in the document they should ask their agent questions to clarify and make sure. If further clarification is necessary, buyers could request that their lawyer read it and give advice where necessary.

Once the document has been signed, all negotiations have been concluded and any relevant cooling-off period has passed, the buyers deposit should be placed into an interest-bearing trust account until transfer of ownership is complete. The interest on this account will be for the benefit of the purchaser.

“The primary objective of an Offer to Purchase is to make the buying and selling of property as transparent as possible. If understood by both parties and used correctly, the Offer to Purchase is an invaluable part of any property transaction,” says Goslett.

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