How to ensure your home loan pre-qualification stays valid
There is a growing trend in SA towards home loan pre-qualification, with both buyers and sellers in real estate transactions putting more value now on financial preparedness.
So says Shaun Rademeyer, CEO of BetterBond, who notes a marked increase recently in the number of prospective home buyers requesting pre-qualification certificates before they even begin looking at properties for sale.
“One reason for this is that pre-qualification actually speeds up the home search process. It gives buyers an accurate measure of their purchasing capacity so they can focus only on appropriately-priced properties. In addition, a pre-qualification certificate attached to an offer to purchase gives buyers much more negotiating clout, because sellers don’t have to worry about their ability to secure a home loan.
However, he says, it is important for prospective buyers to realise that once they have been pre-qualified for a home loan, they need to avoid making any significant changes to their financial situation until they have finalised their property purchase.
“It would seem obvious, for example, that you need to keep paying your bills in the time between home loan pre-qualification and the transfer of your new property - but people often forget bills or pay late in all the excitement of searching for and buying their dream home.
“You also need to be careful not to get into overdraft on any of your accounts, and that any debit order payments are left as they are. Your pre-qualification is a “snapshot” of your financial situation at a particular time and you need to stay as close to that picture as possible until your actual home loan is granted.”
Rademeyer says this is why buyers should also not apply for any new credit in the time between obtaining pre-qualification and taking transfer of their new home. “Lenders will of course do a further credit check before the final approval of your loan application, and if you’ve opened new accounts, that could cause a delay while their status is checked.
“More seriously, if you’ve bought something major on credit, lenders will have to factor the additional monthly repayments into your debt-to-income ratio, as required by the National Credit Act, and that could result in you not getting the loan after all. Alternatively, your credit score/ risk profile could change because of the new debt you have taken on, and that could mean an adjustment to the interest rate you will be charged on your home loan.”
In fact, he says, buyers should even be careful about paying cash for large purchases at this time, or using cash to pay off debt, as that could leave them with lower reserves to cover the deposit on their home purchase and the transaction costs. This could once again change the lender’s assessment of their financial situation when it comes to actually approving a loan.
“In short, every move you make with your money will have some sort of impact on your home loan prospects, so you should consult your bond originator and the lender that gave you the pre-qualification before you do anything.
“If you can avoid it, you must also really try not to change jobs after obtaining a pre-qualification certificate. Even if it seems like a good career move, the bank would have to verify the details and might well require a few months’ worth of payslips to prove your new salary. This could once again delay your loan approval by quite a long time.
“And finally, although adding to your assets should not be a problem, you should keep records of any unusual deposits into your bank accounts at this time. If you receive a bonus or a gift of cash, for example, or sell some shares or other assets, you must be able to prove where the money came from.”
Rademeyer notes that home sellers also need to take care when dealing with buyers who have pre-qualification certificates that these are current. “Most certificates are only valid for three months, precisely because the financial position of prospective buyers can change over time, so sellers just need to check the dates on any pre-qualifications that are presented.”