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How to apply for a home loan

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If you’re thinking of getting into the property market, it helps to have done a fair bit of homework first so you know what is coming and won’t be tripped up by the unexpected.

The journey to home ownership can be exciting and overwhelming at the same time, so it helps to know what to expect. Buyers should prepare their finances by drawing up a budget and checking their credit score, says Geoff Lee, managing executive at Absa Home Loans. 

Prepare your finances

Prepare for the associated costs of buying a home, including having sufficient funds to put down a deposit, Lee says. “With a deposit you will benefit from a reduced loan amount, improved affordability and may be able to negotiate favourable interest rates.”

Costs also include:

◆ Attorney’s fees, transfer costs and registration.

◆ Rates and taxes for the property.

◆ Once-off costs (such as electricity deposits).

◆ Insurance for your new home (monthly expense).

◆ Moving costs.

◆ Levies (if relevant for the property). 

Get pre-approved

Knowing how large a home loan you qualify for can be helpful in understanding your budget, says Buyisile Maseko, growth head at FNB Home Finance. “Getting pre-approved allows you to know what you may qualify for in terms of a home loan based on your affordability.”

Pre-approval can be attained through both banks and bond originators. Each bank has its own pre-qualification tools. Absa’s “Home Loan Estimator” is used to determine what you will qualify for – in less than 15 minutes – before searching for a home.

Make the application

Once you have decided which home to buy it is time to think about signing an offer to purchase with the seller and completing your home loan application with the bank, Maseko says.

Make sure you have the following documents on hand:

◆ Proof of income.

◆ A South African barcoded or smart card identification document.

◆ Copy of offer to purchase.

◆ Proof of current residential address (municipal account, Telkom account or valid TV licence).

◆ Salary earners: most recent salary slip or three-months’ bank statements and a letter from your employer. This will be followed by a phone confirmation with your employer.

Home loan approval

Once the bank has received all the relevant documentation, the approval process begins. “The bank will need to do a valuation of the property to ensure that it is of value and that the bank is willing to finance it,” Maseko says. The mortgage approval process will be efficient only if all the correct documents are provided. “The estate agent will assist you in completing an offer to purchase. This makes the offer formal. It includes an offer price, closing date and financing information.” People also have the option to apply for a home loan through a bond originator.

Assessment of your home loan application

Maseko says the bank will assess the application, which includes what you can afford, will check your credit record with the credit bureau, and will value the property to make an informed decision about your application. “The bank will either decline or approve your application. If the bank is unable to approve the full amount, we will make an offer on the highest amount you can afford.” You will need to either accept or reject the bank’s offer which will be in the form of a quotation.

Fixed or variable interest rate?

Unlike variable-rate mortgages, a fixed-rate bond is not linked to prime, Maseko says. That means the rate the bank quotes you is exactly what you’ll pay, regardless of what happens to the SA Reserve Bank’s repo rate. Lee says customers can request a fixed rate for 12, 24, 36, 48 or 60 months. “The request will be accompanied by a credit assessment and the customer will need to agree to the pricing for the fixed rate and term.”

He advises customers to consider the following when fixing a rate:

◆ The longer the fixed-rate term chosen, the more expensive it will be.

◆ If the customer cancels the agreement before the end of the fixed-rate term, a penalty will apply. Fixed rates will offer customers certainty through the cycles, Maseko says.

“The benefit of a fixed rate is that a customer will know exactly what their repayment will be for the term of the fixed rate, providing peace of mind and ability for customers to have more control of their money management.” She says customers should not try to time the cycle because no one knows for sure what that will look like in the future.

Registering your bond

Once you have accepted the home loan offer, the next steps in the buying process are handed over to the attorneys, who will manage the transfer of property from the seller to the buyer and the registration of the property for the buyer, Lee says. “The attorneys (bond registration and transfer) will draw up the relevant documents for the buyer to sign. The buyer pays the registration and transfer costs. The attorney then prepares all documents for lodgement at the Deeds Office. “Your bank will keep you informed throughout the entire process so you know what is coming next.” He adds first-time home buyers may be required to complete homeowner education prior to registration of the bond. This is facilitated by the bank with its partners nationally and is now conducted via online webinar training, making it easily accessible and convenient for the client.

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