With more affordable property prices and bank approval rates at historical high levels, coupled with easing deposit requirements and lower interest rates, this may be the best ever opportunity for first-time buyers to buy a home. But to get a home loan, you’ll need a good credit rating, check affordability and get prequalified.
Here is a home buyer’s guide that provides advice to help make the home buying experience as easy and problem free as possible:
A good credit score will significantly improve the likelihood of home loan approval – and that’s something you can start working on right now.
“Besides the ‘want’ there’s the ‘need’ for financial security and property is an excellent investment. The ‘forced saving’ of putting part of your salary into a home loan on the property you live in makes far better financial sense than paying rent to cover someone else’s bond,” says Paul Stevens, CEO of Just Property.
1. Apply the 50/30/20 rule
US Senator Elizabeth Warren, a bankruptcy expert, and her daughter, Amelia Warren Tyagi, popularised this rule: split your income into three spending categories: 50% goes to essential bills and monthly expenses, 20% toward financial goals and 30% to personal spending (all the stuff you like to spend money on but don’t really need). Put the money earmarked for your financial goals into a separate savings account, says Stevens.
Find out what home loan amount
you could qualify for in 2020
2. Ditch the debt
Debt is one of the first things banks look at when it comes to assessing bond affordability. It doesn’t matter how many applicants there are – any bad debt will count against you. To qualify for the largest bond at the best interest rate, Ria Venter, Regional Manager for Rawson Finance, highly recommends getting rid of any unnecessary store cards, credit cards and loan accounts. If you can tighten your belts to pay off things like car loans, even better.
“Ideally, you need as few expenses coming off your bank accounts each month as possible,” says Venter. “This shows the bank that you have sufficient disposable income and that each of you are serious about your financial health.”
3. Build a strong financial history
Clearing bad debt is important, but she says a record of good debt is an equally powerful tool for looking good on your joint bond application.
“Banks like to be able to see that you have a history of paying what you owe timeously and responsibly,” explains Venter. “A good financial track record really does count in your favour.”
Use the bond calculator to see bond repayments
and additional costs
If none of your co-applicants has ever had a loan, store account or credit card before, you may want to consider opening a credit account purely to build a positive history. Of course, it’s important not to fall into the trap of using credit unwisely – keep your eyes on the prize of your home loan and treat any credit facility responsibly.
4. Bide your time
10% of your credit score is based on how many new loans you’ve taken and inquired about over a certain period of time. So, wait until you are ready to take out a bond before you do your loan shopping, and then, complete it within a 45-day window, so that it’s treated as a single loan enquiry. Credit scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which enquiries occur, says Stevens.
5. Get pre-approved for a bond before looking
“Imagine falling in love with a property after many months of searching. Picture the immense joy of discovering that your offer has been accepted. Now, imagine what it would feel like to have the rug pulled out from under you when you realise that you cannot qualify for the required home loan amount. The disappointment of losing out on their dream home often leaves homeowners unwilling to continue the search, delaying or even grinding the process to a halt altogether,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
While acquiring pre-bond approval might seem like an unnecessary item of admin that you simply do not have the time for, buyers are regularly surprised by what they thought they could afford, and what the banks would grant them when it finally reached that point in the process, he says.