So you have just found your dream home and are ready to apply for finance. Naturally, your mind defaults to your own bank; after all, you’re a loyal client with a long-standing financial history, so why would they not approve you?
But this is “simply not the case”, argues Rhys Dyer, chief executive of ooba Group.
“We continue to see differing pricing decisions and credit from the banks, regardless of whether the applicant is that bank’s client. It’s important to remember that each bank has different loan criteria and, in turn, is required to comply with the National Credit Act.”
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These are the six things prospective homeowners must do before applying for a home loan:
1. Compare interest rates
Purchasing a home is the biggest investment that most of us will make in our lifetime, therefore, it is strongly advised that you remain objective and do your research, Dyer says.
“We’ve seen many buyers rushing into home loan financing out of sheer panic without comparing interest rates to make sure that they are getting the best possible deal.
“Different banks will offer you different interest rates. The bank’s interest rate on your home loan is linked to the prime interest rate set by the South African Reserve Bank (SARB) – either above or below prime, depending on your credit risk profile.”
This is where comparing home loans can be of great advantage.
He also urges that you weigh up a number of elements in choosing where to apply, rather than simply waiting for bond approval by your own bank.
“There are a host of factors to be considered, given all the options available to homeowners today. All of these can be carefully explained to you.”
2. Consider the repayment period
A home loan term is generally a choice of 20 or 30 years, he says, explaining that a 30-year bond means lower monthly repayments on a higher interest rate while a 20-year bond means higher repayments on a lower interest rate.
“A 30-year bond costs more in the long-term but will leave you with more room for additional expenses each month. A bond originator can help you to weigh up what’s best based on your affordability.”
3. Understand the process for a joint bond application
Dyer says ooba is seeing an increase in joint bond applications where two, or more, people apply together for a bond on the same property. This process is, however, more complicated in some ways as the banks look at the affordability of both/ all parties, so he says it is good to cast a wide net when applying.
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4. Make an informed decision about putting down a deposit or not
The uptick in 100% (zero-deposit) bonds being granted by the banks has played a major role in the sustained demand for home loans.
“Of the home loans approved through ooba Group in Q1 of 2022, 64% of applications were for buyers who required financing for the full purchase price – a 5% increase on Q1 for 2021.”
However, Dyer cautions that this does have some drawbacks so it’s “vital” that you work closely with bond originators to determine whether it’s the best option for you.
“Prior to applying, it is also important that you work with a bond originator to determine your credit score and affordability; weigh up the financial pros and cons of a 100% bond; and have a clear understanding of the criteria that different banks use when deciding whether to approve a zero-deposit bond. All of this information is freely available and easily accessible to potential homebuyers.”
Explaining the difference between a 100% bond and a 105% bond, he says: “A 105% bond normally cover the costs of transfer and bond registration (usually 8% to 10% of the purchase price), and is generally targeted at first-time buyers and properties below R1.8 million.”
6: Decide between a fixed or variable interest rate
Some banks may offer you the option of a bond with a fixed interest rate when you apply – that is, a set rate that will not fluctuate when interest rates go up or down. This, Dyer says, helps to protect buyers from interest rate hikes.
“However, it also means that you will not benefit from monthly repayment savings should it go down.”