So what can be done to avoid this situation and improve your chances of your finance being approved?
When you apply for finance the banks do an extensive check, not just on your income and the ability you have to service your bond, but also on your creditworthiness and your payment history.
In many cases the consumer is not aware of their payment history rating, and may not even know of judgments against them. You are entitled to one free credit check a year. So visit www.creditexpert.co.za or www.mytransunion.co.za for a free credit report. You will be able to see if there are any problems that need addressing before you even start your search for a property.
The next step in the process is to make sure you know exactly what finance you will qualify for. Speak to your bank, or even better, to an independent home loans consultant such as Ooba. Ooba has the ability to pre-qualify you as a client. This process involves a number of different credit checks, as well as an evaluation of your income in order to guide you.
You will be informed not only how much bond you will qualify for, but also at what estimated loan-to-value. In other words, what percentage of the purchase price are you likely to finance. It’s very important that you understand the difference.
For example, you may qualify for a bond of R 1 700 000. But this may not mean you can purchase a property for R 1 700 000 and finance the full amount. Most banks will not finance 100% of the purchase price over R 1 500 000.
In reality, banks will generally avoid 100% finance. So, if you want to increase your chances of bond approval you will need to be in a position to put down a deposit of 10% or more. This more than doubles your chance of bond approval.
It’s also important to appreciate that banks work on risk. So, the higher the bond amount as a percentage of the purchase price, the worse the interest rate is. The lower the risk to the bank, the better the interest rate you will get.
In many cases the banks will qualify you on an interest rate of Prime +2% – allowing for potential interest rate increases.
In addition to a deposit, you will also need cash to cover transfer fees and bond costs. You will be able to calculate what these are by going to attorney websites and using their online calculators – or just ask your estate agent.
If you do your homework properly before you make an offer to purchase a home then you greatly increase your chances of success. You also strengthen the value of your offer to a seller who will know the chances of finance approval are high, compared to other buyers.
Principal of Harcourts Platinum
Director of Harcourts South Africa