HOW TO GET YOUR HOME LOAN APPROVED

The industry experts share tips on how to apply for a loan and the benefits of paying your bond off early.

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Buying your first house is thrilling, but securing finance can be tricky. Here’s how to go about it.

Every home loan is reviewed on its own merits,’ says Andrzej Szanda, head of credit at a major bank. ‘Credit legislation requires banks to perform a robust affordability assessment to determine whether you can afford it, and will be able to comfortably honour your commitments.’ Banks calculate affordability using your gross income, net income and fixed monthly expenses, to have an idea of your monthly disposable income. So how can you better your chances?

HOME LOAN CHECKLIST

1. Be sure the house is truly within your price reach – repayments should be less than a third of your monthly net income. Most financial institutions have online calculators to work out how much you will need monthly to cover the bond (just google ‘Repayment Calculator’). Apart from the cost of your loan, factor in utility costs like water, electricity and rates. Your estate agent should be able to tell you the average monthly spend for the area, says Nondumiso Ncapai, head of business development at another major bank. You also need to factor in security costs.
2. Have a steady income. Financial institutions will need proof of this. If you’re self-employed, you’re generally seen as a greater risk.
3. Have as much disposable income as possible – so reduce debt and save wherever you can.
4. Watch your credit rating. Managing credit accounts well and having a clean credit record greatly increases your chances of securing that loan. ‘To improve your credit score, open a small and manageable credit facility where you make timeous and consistent monthly repayments,’ advises Ncapai. You’re entitled to a free credit check from each of the bureaus every year, which means you can check your credit every four months. You can check your credit rating by calling Jet’s Credit & Debt Helpline.
5. Have enough for a deposit. The general requirement is 10% of the asking price for the home. The smaller the percentage of the price that needs to be financed, the better your chances of loan approval. And putting down a 10% deposit on a R600 000 home (R60 000) would decrease your installment by almost R600 a month, which works out to be an R81 000 saving in interest over 20 years, says Szanda.
6. Plan for additional costs. Ask your financial institution upfront about these. For a home loan of R600 000 at an interest rate of 10.25%, additional costs would be: initiation fee – R5 985; bond registration costs – R15 000; transfer costs – R15 000. You won’t be liable to pay transfer duty for purchases under R900_000.

HOW TO APPLY FOR A LOAN
With some financial institutions today, you can simply go online or use their app to apply, but for a first-time buyer, it’s best to book an appointment in person with someone in the home loans department at the bank.

What you’ll need to apply:
A signed offer to purchase (the estate agent will help you with this) proof of ID and your current address proof of income (your last three payslips if you have a transactional account, or three months’ bank statements and your last three payslips if you don’t) a copy of your employment contract, or if you’re self-employed, two years’ financials, three to six months’ bank statements and an IT34 or IRP5, or a letter from a registered bookkeeper confirming your personal income.

If your application gets the green light, you’ll receive an ‘approved in principle’ notice. Then if you accept the terms and conditions of the loan, the institution will evaluate the property. If they’re happy the property is worth what you’ll be paying for it, your application will be finalised and they will instruct registration attorneys to register your bond (your loan). The property will be transferred into your name and a mortgage bond registered in favour of the financial institution granting you the finance. This typically takes three months, or 60 working days, says Ncapai.

If your application is declined, query the decision. It will generally be because their calculations suggest you can’t afford the repayments on the loan. Keep saving, manage your credit well, and when you’re ready, try again!

BENEFITS OF PAYING OFF YOUR BOND EARLY
Most home loans are approved with a 20-year repayment period, but paying extra each month can knock years off that, saving you interest, says Szanda. So put every cent you can afford into your bond – it’s the best investment you can make!

EXAMPLE
If you get a R600 000 home loan at prime (the standard interest rate charged by banks) and pay an extra R300 per month – your bond will be paid off in 17 years and 3 months, and you will save over R132k in interest.

By Glynis Horning

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