Buying a home is often the single biggest investment most people make. The largest proportion of home buyers seek a mortgage bond. As a result it is essential for buyers to ensure they are fully prepared for making a bond application.

The better prepared, the better the chance of getting the application approved. Rhys Dyer, Chief Operating Officer, South Africa’s leading bond originator, answers ten questions for new homebuyers to consider:

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.

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 pattern of borrowing and repayment as well as how you have managed you bank accounts and other credit facilities.

Why should I consider a bond originator? – www.mortgagepluscc.co.za
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.

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.

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.

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 for which you apply, 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.

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.

Can I afford to put down a deposit?
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.

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.

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:

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011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

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Residential sales improving – but bond negotiations not

Another high profile figure in the property industry, Michael Bauer, managing director of IHPC (Pty) Ltd, has said that he finds the methods by which banks issue – or do not issue – mortgage bonds to be difficult to understand and lacking in consistency.

IHPC markets and sells homes at Bardale Village near Kuils River. Bauer says that his sales team there has learned what criteria the different banks apply in assessing a client and they ‘go the extra mile’ to ensure that all their applications are fully compliant. As a result, said Bauer, a high percentage of Bardale Village’s applications are successful.

The Bardale Village sales team’s checks, said Bauer, include affordability checks, payment profiles, credit scoring, and full credit checks. These are very similar to those used by the banks. Often when the rejections come through, he said, his staff cannot identify any reason for their failure.

“In a country that needs housing as desperately as South Africa does,” said Bauer, “these rejections and delays are especially frustrating – and, of course, they cost the developers very large sums of money.”

The good news, said Bauer, is that the effect of the lower interest rates, which always take six to nine months to become evident, can at last clearly be seen. This year sales enquiries at Bardale Village have been 70% up on the last quarter of last year. However, the stricter lending criteria applied by banks and the National Credit Act have raised the required earnings threshold for potential buyers at Bardale Village: to a combined salary of about R12,000 per month, he said. The applicant’s monthly expenses and net surplus (i.e. net income less expenses) are also taken into account, as is his credit history.

Most banks, added Bauer, do have a special niche product for truly affordable housing and on these the interest rates are set at well below prime and in some cases fixed up to five years. This, he said, is a genuine contribution to the alleviation of the housing shortage and should be exploited by first time home buyers who qualify.

However, the upper limit on the housing and income to qualify for these bonds tends to make the task of the developer very difficult. For example, where a R12,000 per month income is required and the loan amount may not exceed R400,000. In practice, said Bauer, with land prices and construction costs at their current levels, it is almost impossible for some developers to produce a suitable product at this price level, although at Bardale it was achieved.

Experience, he said, has also shown that it can be unwise to mix income groups in one area – the more affluent feeling that the lower prices let down the tone of the estate. - IHFM Press Release

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

Complete this short form online

Call us on 011.327.4489

Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za