How to get a home loan in South Africa

Thinking about taking the plunge and changing your status from ‘renter’ to ‘homeowner’? If so, you’re not alone. Research shows that first-time property buyers are dominating the South African property market. If you fall into this category, you could find yourself choosing from a range of home loan options that are specifically aimed at first-time homeowners. It’s a great time to make this type of investment — provided you prepare first.

If you’re just getting onto the property ladder for the first time, there are a few things you should be aware of before you start browsing properties and filling in home loan application forms. Making the right (or wrong) choices could impact how much financing you qualify for or whether or not you secure a home loan in the first place. Here’s how to get a home loan in South Africa.

What’s a home loan?

A home loan is a long-term finance product that aims to cover all or part of the costs of purchasing a residential property. In most cases, financers will require you to put down a deposit which is calculated as a percentage of the property or loan’s value. However, certain buyers can qualify for a 100% bond depending on their credit history and score and if the property isn’t valued over a certain amount. While there’s no minimum repayment term for home loans, most maximum home loan repayment terms are capped at between 20 and 30 years.

It’s worth noting that while a home loan can secure you a property that there are many costs that accompany this purchase that must be paid upfront — over and above your home loan instalment. This can include transfer duty, initiation fees, attorney fees and conveyancing costs.

Your home loan application success and the value of the loan you qualify for will be heavily impacted by several factors including your affordability, the Loan To Value (LTV) ratio of your application and how much you’re able to put down as a deposit as well as your credit record.

How to qualify for a home loan

Home loan providers may use different criteria to determine if a person qualifies for a home loan and how much they qualify for. It means that what each home loan provider requests for your home loan application may differ. Despite this, there are a few things they’ll consider:

  • Your deposit amount — There’s no set minimum deposit you are required to put down and some banks can offer qualifying people 100% bonds. Whatever deposit you put down will impact your LTV ratio and how much risk you present to the home loan provider. This will also impact the interest rate you qualify for.
  • Your credit health — Your credit health can include your credit behaviour, credit history and credit record or score. This can range from person to person but home loan providers can take into consideration whether your loan repayment to income ratio exceeds 31%. They can also look at your other debt obligations and the nature and amount of these obligations.

How to apply for a home loan

It’s a good idea to check your credit record before you apply for a home loan, and to take steps to address any problems straight away. Consumers are entitled to one free credit check per year, and you may do this through any of the credit bureaus. Find out how you can achieve and maintain a good credit score here.

Once you’ve found a home you’d like to buy and have put in an Offer to Purchase, you can start the process of applying for a bond. You can speed up the physical application process by having the following documents ready.

You may apply for a home loan by yourself or with another person. If you’re planning on applying for a joint bond both parties will need to submit some of the required documents and it’s advisable to prepare a legal agreement covering why pays for what, when and why. This is critical as both names will appear on the deed and you’ll need a plan in place should one party want to terminate ownership.

How does interest on home loans work?

At the outset of your home loan application, you’ll find out what you qualify for and once you receive your Letter of Acceptance confirming that you have been approved for a bond, you’ll be given a detailed breakdown of what you can expect to pay per month. This will include the interest you’re paying on a loan. Because interest rates have such a big impact on your total repayments, it’s important to understand what determines this – so you can make sure you qualify for the best possible interest rate.

Applying for a home loan can seem intimidating and you’ll naturally want your application to succeed the first time around.

At O-YES Home Loans we understand that your success is our success. Why not use our free online calculator to determine your current home loan affordability? When you’re ready to get started on making an application you can contact us here.

Courtesy of SA Home Loans