We've been discussing house-hunting and all that goes into making a wise choice when purchasing property.
Step 1 is calculating what price range you can comfortably afford for a house. Step 2 is funding your purchase.
But how do you strengthen your position to do so??
In the past a 20% deposit on a house was a basic requirement, with the bank funding the remaining 80% with a bond. Nowadays 100% bonds are the norm, with some banks even offering 108% bonds so that you can cover the costs of transfer fees and bond registration costs without feeling the pinch.
However, remember that the more you borrow, the more you will have to repay in interest! While you are still renting, long before you even start house-hunting, start saving for your house. If you can put down a substantial deposit, you will need to borrow less from the bank and you will save yourself a significant amount of interest in the long term.
It's far better to pay associated costs such as transfer fees from your savings than having to borrow for them. (We'll be looking at these associated costs in more detail in the next issue.)
Let's say you've found a house that suits your budget and your requirements, and you put in an offer on it. If your offer is on condition of bond approval, you stand a slim chance of having your offer accepted if another prospective buyer has pitched in with a cash offer.
However, you can strengthen your offering position with something called a guaranteed home loan certificate" from your bank. This certificate will be issued to you after your bank has gone through a process similar to the process of applying for a bond. Your gross income will be assessed, and basically the bank certifies that you qualify for a certain loan amount. This improves your negotiation position with agents and sellers.
Shopping for a home loan
One area where banks are extremely competitive is interest rates on home loans. Financial institutions are tripping over themselves to capture new business. This is to your advantage. Shop around and see who can offer you the best deal. These days you can even apply for a home loan online, and get special discounts on bond registration fees.
Some estate agents will offer to handle the bond application process on your behalf, or will recommend that you apply to a certain bank or institution for your bond. You are under no obligation to do so. You can be entirely independent of the agent when applying for a bond.
Make the process easier on yourself by having all your documentation ready. You will need a copy of the purchase offer, recent proof of your income and employment, your marriage certificate (if applicable), your ID, and proof of other accounts and HP agreements in good standing.
The National Credit Act and what it means for you
South Africans love to borrow money, and banks love to lend it to us. This has resulted in over-borrowing and massive debt. Starting in June of this year a new Act, the National Credit Act, will be phased in. Basically this Act has been created by Government to protect consumers from themselves.
In terms of the Act, buyers' ability to secure a home loan will depend not so much on the fact that they have never missed a bill payment, but on their overall credit exposure, with lenders being obliged to make thorough assessments of borrowers' total debts before agreeing to lend them any more money.
What this means for you is that it could take a lot longer for your bond application to be approved (due to all the checks that must be done), and there is a greater chance that your application will be turned down if your current exposure to debt is too high. Even more reason to line up your guaranteed home loan certificate" before you go shopping for a house. Pre-qualification for a bond will most likely become essential, rather than just a useful thing to have.
Next issue: Considering the so-called hidden costs" in buying a house, and should you opt for a fixed or variable interest rate on your home loan.
