How to best qualify for a bond
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 financial 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. How then do you qualify for a bond? Banks work 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. 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 like Ooba or SA Home Loans. 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 process 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 your 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. 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’s 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 like SA Home Loans and Banks like Nedbank and FNB, 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 (also see: https://wordpress.com/read/blogs/143769079/posts/13), 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. 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