Many people are under the impression that it is impossible to get a home loan these days and that the banks make it impossible to buy a house, whether it be your first property or an investment buy.
To this end, I thought it would be a good idea to give a few examples of typical pre-qualifications with clients who wants to know what their options are when applying for a home loan.
Once we have established the basics like income, number of applicants, employment status, creditworthiness and existing home loan exposure, I am able to give the client a reasonable idea of what to expect from the various banks.
Mr Smith is a bachelor wanting to buy his first property. He is permanently employed by an established company and has saved up for the attorneys costs associated with Transfer & Bond registration, but does not have a deposit, therefor he needs to apply for a 100% bond. He earns R45 000 p/m with the normal debt & expenses in his name like groceries, petrol, DSTV, Telkom/internet, vehicle finance, credit card, insurance, etc which he manages well and because of that his credit score is very good at 910/999.
Mr Smith should qualify for a home loan of approximately R1,3M based on an expected monthly repayment of R13 000 over a 20year loan term at an interest rate of 10.75% (Prime + 0.25%), due to the 100% loan. His credit score is good enough to qualify for a 100% loan without a deposit. My feedback to him would be to shop for property priced up to a maximum of R1,3M with a reasonable expectation of success and a decent interest rate to match.
If Mr Smith had made provision for a deposit of at least 10% of the purchase price we would be expecting interest rates around the Prime -0.5% and better mark, also due to his good credit score.
On the flip side, Mr Jones has owned property before and is not a first time buyer. He has a 20% deposit to contribute in addition to Transfer & Bond registration costs. The downside is that he was retrenched 6 months ago and therefor had fallen behind on his debt repayments before selling his house and settling most of his debt, but keeping some of the profit from the sale as a deposit for a new house. He found a new job with a salary of R25000 p/m last month. His credit score is 730/999.
If Mr Jones did not have a large deposit I would be quite conservative in my feedback to him, due to his current credit score, but due to his deposit my advice is that he can house hunt for approximately R850 000 with a 20% deposit and a home loan of R700 000.
Ms Botha is divorced and owns her own business. She wants to buy a property together with her daughter, partly as an investment for her and partly to get her daughter into the property market. Ms Botha earns a very good income from her business of R65 000 p/m and her daughter, a 1st year student, is a part time waitress with cash only income that unfortunately cannot be used for a bond application. She obviously does not have a lot of credit in her name, apart from a clothing account or two and for this reason she has not been able to build up a good credit score as yet. Ms Botha on the other hand has a very good credit score of 890/999 and is able to contribute an amount of R200 000 as deposit in addition to attorney costs.
Providing Ms Botha can prove her income by way of a Letter from her Accountant, Financial statements for her business and her bank statements reflecting the income she has declared, she should qualify for a home loan of approximately R1,9M based on her income, and adding the R200k deposit she can buy a property for up to R2,1M. In addition she owns a property that is bonded for R850 000, but receives rental income of R10 000 p/m. In this case the rental income cancels out the bond repayment as well as other expenses like rates & taxes, so the affordability calculation above still applies. She should get a decent interest rate somewhere around prime and 0.5% below, even though the co-applicant daughter doesn’t have a good credit score. The banks will always focus more on the primary applicant, who is normally the main income earner.
Mr & Mrs Louw is a newly married couple expecting their first child, so they need to upscale. They are both professionals with degrees and a very good combined income of R95 000 p/m. They have managed their debt well so they both have credit scores above 850/999 and will make a profit of around R600 000 from the sale of their existing property which will be used for the purchase of a new house.
I would pre-qualify Mr & Mrs Louw for a home loan of approximately R2,8M. They would make provision for attorney costs of around R250 000 in total and the balance of their profit would go towards a deposit, meaning they could buy a property for up to R3,1M. For this application I would expect a very good interest rate as these are model clients for the banks.
I could provide many more examples like the ones above because we have been there and seen them all and no two people’s situations are the same. Therefore each bond application is considered on it’s own merits. The best thing would be to contact me for a free, no obligation pre-qualification based on your individual circumstances if you are considering buying property in the near future. Preparation is key with this very important step!
Yours in Home Loans…