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

When purchasing a home one of the most overlooked aspects is getting a good mortgage. The difference between a good and bad interest rate could save a person hundreds of Rands per month or give them tens of thousands of Rands of extra affordability. With interest rates near all time lows, now is an excellent time to lock in “Fix” a low interest rate through either a new mortgage or a mortgage refinance. However, due to the recent rates of mortgage defaults, many mortgage lenders are hesitant to give out new mortgages and getting the best rates are even harder to come by. Luckily, there are various steps a person can take to get a good mortgage rate.

Have Good Credit

The first step a person can take to get a good mortgage rate would be to have good credit. When reviewing a credit application, a person’s credit score is one of the largest factors that a bank uses in the mortgage approval process. This is because a credit score shows a person’s ability to make payment on time and as agreed and can be used to determine whether the person will continue to make payments on time in the future.

To understand your credit, it is important to check your credit report. If there are inaccurate or negative information on your credit report, it is important to fix the issues a few months prior to applying for the mortgage. Some of the easiest ways to improve your credit score quickly would be to have erroneous information removed, pay off any outstanding credit card balances, and pay off any existing charged off accounts. In general, you will need a credit score of 700 to be approved for a mortgage and a score of 740 to get the best rates available.

Put More Money Down

The second step a person can take to get the best possible mortgage rate would be to put more money down. In recent years, many lenders were willing to give mortgages to people with no down payment. Due to declining property values and high rates of underwater mortgages, most banks now require a higher down payment. In order to get approved for a new mortgage or a mortgage refinance you will need at least a 10% down payment. However, in order to get the best possible rate, and to avoid paying private mortgage insurance, you will need at least a 20% down payment.

Purchase a Cheaper Home

The third step that a person can take to get a lower mortgage interest rate would be to purchase a cheaper home. Home affordability is one of the biggest risk factors considered by mortgage lenders. In years past, mortgage lenders were willing to give a mortgage to someone whose housing debt to monthly gross income percentage was 40% or less. Since lenders have found that people with that level of housing debt are more likely to default, many lenders now recommend a percentage of 30% or less. Therefore, if you are looking to get a mortgage, purchasing a cheaper home will lead to lower payments and, therefore, a lower debt rate.

Negotiate

The fourth step that a person can take to get a lower mortgage rate would be to negotiate with lenders. If you have a good credit score, a large down payment, and are purchasing an affordable home, many mortgage lenders will want your business. If this is the case for you, you will be able to negotiate with lenders to receive both a lower interest rate and lower fees.

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