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

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