Buying a home is the probably the single-largest purchase you will make in your life and the process can be stressful. The best way to alleviate that stress is to arm yourself with as much information as possible and be realistic about what you can afford, says Geoff Lee, managing executive at Absa Home Loans.
“You must ensure you can afford the loan before the application process begins. Managing your finances and ensuring you will be able to meet the bond repayments for the full period of the loan is crucial. Any major investment warrants careful research before you take the leap.”
Not being able to afford the bond repayments is worse than the fleeting awkwardness of being declined upfront.
He says aspiring buyers must:
- Buy within your means. Always be realistic, open and honest.
- Prepare a detailed budget, review your bank statements and consider all your expenses, regardless of their size. Include any which are due on an annual or quarterly basis.
- Use the tools on your banking website and obtain expert advice from a home loan industry specialist.
- Consider the impact of an interest rate hike on your monthly instalment. If fluctuating interest rates worry you, a fixed rate option could be your solution.
It is essential prospective home buyers understand what their monthly repayments will be, the potential savings of putting down a larger deposit, and detailed costs of the new home loan, including registration charges, transfer costs and attorney fees, Lee says.
Buyers should also remember to factor in insurance premiums. “From short-term to life, it is imperative that insurance be catered for in your budgeting calculations. Your debt commitments do not fall away if you die. They become a debt to your estate, decreasing the inheritance you leave to your loved ones.
Insurance options such as a credit life policy can ensure your debts are paid up and your family is not burdened on your behalf.” Furthermore, there are many factors you need to consider when working out what you can really afford on a monthly basis.
“After deducting your loan payment from your income, you need to consider utility costs, such as water, electricity and levies. Your estate agent should provide you with an idea of the average monthly spend on rates and taxes, water and electricity for the area.
“Levies are an important consideration should you be purchasing a sectional title property, and should form part of your monthly expenses. The estate agent would be able to give you an indication of what the levies are, and importantly, the growth of the levies over a few years,” he says.
By putting down a deposit, buyers will reduce the amount of money they need to borrow, and so reduce the required monthly instalment. When an application for a home loan is made, Lee says it is assessed in line with the National Credit Act.
He outlines the assessment process:
- The bank will authenticate your identity as well as your income and employment information.
- The property details will be validated.
- The application will be processed. Your credit worthiness will be assessed.
- You will be informed if your loan is approved or declined.
“If your application is approved, you’ll get an ‘approved in principle’ notice.
This approval is subject to your acceptance of the bank’s offer. Once you accept the terms and conditions of the loan, the next step is a property valuation. “If the bank is happy with the valuation we’ll move you into the final grant stage, where your home loan application will be finalised. After that we will instruct the registration attorneys to register your bond and will keep you updated on the progress until your bond is registered.”
Lee says buyers must factor in time for the actual property transfer, including bond approval which, under normal circumstances is about 60 working days. “If the transfer is conditional upon the sale of your previous property, for example, this can take between 10 to 12 weeks to register.
“Should the transfer be linked to a development or is in terms of a deceased estate, an endorsement transfer or a divorce transfer, the process will include more steps and will take longer. “A straight transfer, with no bond registration (cash transaction) usually takes about six weeks.”