Are you planning to buy a home, whether as a primary residency or as an investment? Buying a house can be an expensive investment. Often than not, one will need finance assistance to make the dream of buying a house a reality. This is because buying a house out of your own money is nearly impossible or requires you to save money over a significant amount of time, several years to be specific.
In this article, I hope to help you prepare yourself to get your first housing finance. Banks works like robots. They follow a strict set of rules when assessing your application for a bond. This may mean that you may even be disqualified even when you can afford to repay the amount applied for.
If your bank does not approve your application, stay calm banks are not the only bonds providing institutions. To increase your chances of getting approved for a bond, you can go through bond originators.
What are the advantages of using a bond originator?
- Most bond originators provide a free service and will send your application through to all major banks. As a result, you will incur little to no costs at all whatsoever.
- Your chances of getting approved increase because:
- They will not send your application unless they are convinced that you will get approved
- They will send your application to more than one bank. As a result, you may in fact get the most affordable bond terms. It is the bond originators job to ensure that the applicant get the most affordable rate
- You save a significant amount of time as you will not have to go around shopping for a good rate among all banks
- Bond originators know what banks require to successfully processing a bond application. So, they will prepare your application for success
Tips to secure a better bond:
- Start by restructuring your budget. Consider what you ready need vs. what you do not need. Get rid of all unnecessary items on your budget. This will ensure that you have more disposable income that will otherwise go towards your bond
- Get rid of all you bad debts. Bad debt is debt incurred to purchase things that quickly lose their value and do not generate long-term income. It carries a high interest rate, for example credit card debt. Having a lot of debt is one of many sources for a bond application being declined. Creditors believe that a customer with a lot of debt has a higher chance of missing their repayments.
- Save up a large deposit. Not all banks will give you a 100% bond. Besides, a huge deposit will save a bit on interest. Also, you may need money to pay for transfer costs banks may not cover for this. Most lenders also require the borrower to have at least 10% of the capital outlay
- Have a payslip. Most bond providers need proof of income. A good start is a payslip. Even if you own your own business, have a payslip. Ensure that you have money going into your personal account every month.
- NB – A payslip is good, but remember at the end of the day what the banks are looking for is your affordability. That is, do you have the ability to service the debt. If you pay yourself or if you get a big salary but what is left in your bank account, after all expenses are paid for, is too little then you may end up not qualifying for the amount you are looking for.
- Have financial statements and management accounts – If you own your own business, have your business’ financial statements and management accounts (latest) ready. Banks will use these to measure your affordability and to see how much income (drawings) you are getting from the business.
- Check affordability – before you even start applying check if the property is affordable. Ensure that the property price is affordable in relation to its location. Further, you need to determine if you can personally afford the price and are able to pay for this house. Affordability is generally calculated at 25% to 30% of joint gross income. But, remember there are other factors, including existing debt commitments that may affect the size of the loan that the credit providers may grant you.
What should accompany your application?
Based on my experience with bond originators and some banks, at a minimum you should have the following before you send your application:
- The application form from the bank or bond originator
- Your statement of assets and liabilities . If you keep a personal data room, you should have the latest updated statement at your disposal. If you maintain a set of your personal accounts, then it should be easy to print out your balance sheet from your accounting system/record.
- Your latest payslip or/and IRP5. You can easily get these from your employer.
- Certified copy of your ID/passport
- Proof of residence
- Latest six months bank statements. If you are applying through your bank, this may not be needed as your bank has access to your bank statements.
- Your most recent ITA34 – income tax assessment, which may also be used as proof of income
- Income letter from your accountant or auditors
- If you own and run your own business:
- Latest signed financial statements
- Letter confirming shareholding in the company or close cooperation
- Latest management account, which should cover the latest complete month up to the last signed financial statements month
What if I am a foreign national or non-resident:
There are certain restrictions for non-resident property buyers:
- You may be required to raise 50% for the property price. For example,
A non-resident who wishes to purchase a property in South Africa for R900,000.00, provided R450 000.00 is introduced into South Africa to effect the purchase he / she would be able to apply to the South African Reserve bank for permission to avail himself of a bond of R450 000.00. In other words banks will lend up to 50% of the purchase price.
- The requirement for temporary resident or permit holder is almost similar. The only exception is that such a mortgage bond is not restricted and depending on the standing of the client can be 50% of the purchase price of the property. The approval of the foreigner application is dependant on the approving manager in the bank where the application is made or where he/she holds his bank account.
- You may want to read this: https://www.ooba.co.za/resources/financial-assistance-foreign-buyers
Requirements for permit holders (Source Property24):
- Temporary Residence Permits
- must have a valid Work permit which has at least three years remaining before its renewal date
- at the time of the bond application must be working for the same employer reflected on the Work Permit.
IMPORTANT THING TO KEEP IN MIND:
Most banks restrict home loans for Temporary Residents to 50% of the purchase price of a property but Nedbank currently offers up to 90% if the applicant has banked with them for the minimum of a year. These terms are fluid, however, and the banks can change their policies at any time. If you are a foreigner (or have a foreign partner) and you are looking to purchase a property and apply for a home loan it is CRITICAL that you approach a reputable and experienced mortgage originator who will provide you with the very latest information.
- Permanent Residence Permits.
The Permanent Residence Permit confers on holders the same rights to mortgage loans as apply to bona-fide South Africans (i.e. they are not restricted to 50% loans.)
However, some banks will not exceed the 50% loan-to-value until the applicant has been issued with the South African green bar-coded identity document. This often places the applicant in an invidious position because Home Affairs has been known to take more than two years to issue such identity documents!
If you can’t afford to buy on your own, you may want to buy together with a friend as a co-applicant. As time goes on, and you finish paying for the first house, you can repeat the process to buy a second house. Without a doubt, this must be a person you trust and you must find out if your bank is open to this set up. If you are buying private, try and negotiate for alternative settlement plans for any amount in excess of what the bank is offering you provided your affordability and ability to repay the bank is not negatively affected.
I hope you are ready to buy your first home!