Avoiding the big mistakes

BY BONNY FOURIE bronwyn.fourie@inl.co.za

When preparing to apply for a loan to buy a home, it is always best to know your credit score and to understand what you can afford, say experts

Q: WHAT is the biggest mistake prospective buyers make when applying for a home loan or preparing to apply for one?

A1: Not knowing their credit score and not understanding what they can realistically afford is the number one barrier preventing prospective buyers from securing a home. Don’t waste your time and assume your affairs are in order as almost 17% of all home loan applications are declined due to affordability (credit score and insufficient net surplus income). – Mandy Waddington, head of marketing at ooba Group

A2: First, the biggest mistake would be to not use a mortgage origination service. Second, you need to understand the process and what you can afford.

MultiNET offers a preapproval assessment that provides consumers with advice on their buying power. Buyers must also maintain a clear credit profile and ensure all accounts, and possible blemishes, are updated before submitting to a bank. –Shaun Rademeyer, chief executive of MultiNET Home Loans

A3: Many do not know their credit score or what they can afford. Also, make sure you have all your documents in order – this includes recent salary slips and a good indication of monthly expenses. – Carl Coetzee, chief executive of BetterBond

Q: What is the most common misconception that buyers have before or when applying for a home loan?

A1: Many think that all banks are the same. The banks vary in terms of their appetites to lend, lending policies, lending criteria and risk appetite, and given these varying policies, mortgage originators are in the best position to navigate a loan application to the banks to get the best result. – Kevin Mountjoy, director of Bond Gallery

A2: Many buyers think they have to apply to their own bank for a home loan when, in fact, they could possibly secure a better loan rate by working with a bond originator that will apply to more than one bank to secure the most competitive rate. – Carl Coetzee, chief executive of BetterBond

A3: The main misconception we find among home buyers is that they must approach their own bank to obtain the best home loan deal. But this is not necessarily the case and with the originator submitting applications to multiple banks the best deal will be obtained. This will not necessarily be with their current bank. – Shaun Rademeyer, chief executive of MultiNET Home Loans

Q: What advice can you offer buyers when deciding how much to spend on their first home/property?

A1: Make sure you know how much you can afford. Also, take into account the costs associated with acquiring a bond, such as transfer fees and bond costs. Make sure you understand all the costs involved. You may be able to qualify for a bond of R1 million, for example, but you will have to pay other costs as well before the transfer of your home can be finalised. – Carl Coetzee, chief executive of BetterBond

A2: Get prequalified – get an ooba Home Loans expert to prequalify you. Check your credit score and complete a full affordability assessment to establish what you can afford before even looking at a house. There really is no other guaranteed way of ensuring a successful home loan application outcome. – Mandy Waddington, head of marketing at ooba Group

A3: Use a mortgage originator to get pre-qualified and to give purchasers the best advice in terms of their mortgage options and the loans process. – Kevin Mountjoy, director of Bond Gallery

Q: How important is it to have a deposit? And how much do you recommend?

A1: Having a deposit is always preferable. In most cases, banks offer you better interest rates when you have a deposit. This provides you with the knowledge that you have equity in your property. If anything unforeseen happens, and the buyer needs to sell, the ability to cover the outstanding bond and provide some leeway for fees and other related property expenses is provided for through the deposit money. – Shaun Rademeyer, chief executive of MultiNET Home Loans

A2: Putting down a deposit when signing an offer to purchase is seen as a show of commitment. A deposit (usually 10% of the cost of the property) indicates to both the banks and the seller that you are a serious buyer.

However, while deposits were once part and parcel of the home buying process, our latest statistics indicate that zerodeposit home loan approvals are on the rise. During the first quarter of last year, we successfully obtained home loan finance for 80.7% of our applicants – 61% of who required a zero-deposit loan. – Kay Geldenhuys, head of sales fulfilment at ooba Group

A3: Although banks do approve loans up to a 100%, it is always an advantage to have a deposit available. Loans will be assessed against risk, and having a deposit reduces the bank’s risk, which can secure buyers a competitive concessionary interest rate of below prime. – Kevin Mountjoy, director of Bond Gallery A4: While most buyers have an idea how much they can afford to pay each month towards their bond, few realise the importance of putting down a deposit when applying for finance.

A deposit will make a significant difference when it comes to banks deciding whether to approve or decline a bond application. A deposit, even if just 10% of the purchase price, will go a long way to securing a better interest rate. Banks look more favourably at an applicant who appears to be a lower lending risk and paying a deposit suggests the applicant is able to manage their money.

It also counts in a buyer’s favour when negotiating with a seller. Being able to put down a deposit signals intent. Sellers are more likely to consider an offer if they are dealing with a serious buyer.

Buyers who are able to put down a deposit will see a number of benefits, including being in a better position to negotiate. PICTURE: KINDEL MEDIA/PEXELS