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Getting the lowdown on loans

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A pre-qualification is advisable to know exactly what price range is available to the buyer

Ordinary home loans and fixed-rate loans are offered to buyers depending on their circumstances and type of property purchase and need to be understood before applications are made.

Building loans are also awarded by financial institutions and, similarly, are suited to specific buyer needs, says David Britz, marketing director of home developer Multi Spectrum Properties.

Explaining the differences, he says buyers looking to purchase a pre-owned property or a newly built home, will apply for what the banks call an “ordinary” loan, and in most cases buyers will only have about 30 days to confirm to the property seller that their loan has been approved.

And whether you are a first-time or repeat buyer the size of the loan will depend on the property purchase price and the size of the deposit you are able to put down. The repayment period, he adds, will most likely be 20 years, although some banks are willing to extend this to 30 years.

While, in terms of the National Credit Act, banks cannot let buyers get into financial trouble by borrowing more than they can afford, it is a good idea for them to establish the size of loan they are likely to be granted by obtaining pre-qualification.

“This will enable you to concentrate on properties that are in your price range – and speed up your home loan application process once you have found a home you wish to buy. For pre-qualification you will need three months’ bank statements and salary slips; a copy of your ID and proof of residence and should expect to have your credit record checked. To apply for a loan, you will also need a copy of the offer to purchase.”

Furthermore, Britz says ordinary loans are available in a couple of variants, the first of which is a variable-rate loan where the interest you are charged fluctuates in line with the prime rate and is thus affected by macro-economic factors like the inflation rate, the rand exchange rate and the petrol price.

The second option is a fixed-rate loan where the interest you are charged each month is fixed for a certain period – usually for two years.

“The advantage of this type of loan is that it enables you to budget with certainty, but the big disadvantage is that the interest rate charged will be higher than whatever prime was at the time it was taken out, and you will get no benefit if rates should decline in the meanwhile,” Britz says.

“However, when you decide to buy a plot-and-plan home, build your dream residence or make alterations to your existing home, you will need a different type of home loan, usually referred to as a ‘building’ loan.”

To apply for a building loan, Britz says you will need all the same documents required for an ordinary loan, plus:

* Approved building and site plans.

* A detailed building contract and schedule of finishes from your builder.

* Proof that the builder is registered with the NHBRC.

* An all-risks insurance policy for the construction and a waiver of builder’s lien in favour of the bank.

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