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Do your sums before you apply for a home loan

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When you apply for a home loan, banks will access your credit status to establish whether you will be able to meet the bond payments.

First-time home buyers often get caught by surprise when banks ask for deposits to secure home loans, says Lee Mhlongo, chief executive of FNB Housing Finance.

He says when you apply for a home loan, banks will access your credit status to establish whether you will be able to meet the bond payments.

“Depending on the outcome, you are either given a 100% bond or required to put down a deposit of between 5% and 20% of the loan amount.” 

To assist lower income first-time home buyers, most banks, including FNB, will grant most customers 100% bonds without the need for a deposit, provided customers meet affordability considerations. However, when a deposit is required by the bank, many home owners who fear not being able to qualify, compromise their chances of getting the home loan by taking out an alternative loan to cover the deposit.

“Taking out any form of loan while applying for a bond or during the registration process may result in the bank reversing its initial decision to grant you a home loan. This is due to the fact that your credit profile will be in a poorer state as you will now be required to repay both your home loan and the additional loan instalments every month.”

Mhlongo says applicants also need to take into account that they will have to pay bond and transfer attorney fees before the house can be registered.

For a house valued at R500 000, you are likely to pay around R30 000. He says applying for pre-approval from a bank can give you a good indication of how much you qualify for.

“Keeping your credit record clean and saving for a deposit and attorney fees before applying for a bond can give you peace of mind knowing that you stand a greater chance of qualifying. There are no surprise costs that will catch you off-guard.”

Being able to pay a deposit when you qualify for a 100% bond improves your credit score, resulting in the bank offering an even better interest rate.

First-time buyers who earn a household income between R3501 and R15 000 a month can use government’s Finance Linked Individual Subsidy Programme (Flisp) to pay the deposit. Flisp offers qualifying consumers once-off subsidies ranging between R20 000 and R87 000, provided you haven’t benefited from a government subsidy before and have bank approval of the home loan. 

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