To many first-time home buyers, the nerves of unfamiliar territory can be overwhelming. All that paperwork for your bond application, budgets and estimations, and all the best intentions to avoid last-minute surprises and ‘hidden costs’. Anyone who has done it before will tell you that an informed approach is the best approach, so that the steps between your plans of what you’ve been working towards and the home you eventually live in, are steps you take in your own, comfortable stride.
At Reeflords, we take pride in the track record of successful applicants who we now call home-owners, and it is the learnings and teachings we’ve been fortunate enough to be a part of that ultimately informs the journey for every future buyer too.
Packaging that information for you to benefit most from is what we’re committed to, and between our Podcasts and this blog platform, we set out to make sure as much information as possible is available to you for your perusal — and then guarantee our in-person contact as a relationship standard too.
Our upcoming September Podcast explores the important criteria that banks will assess you on when you apply for a bond. Keep an eye on our Facebook page to see when we post the link for you to listen to but, to give you a headstart, we’ve curated the most important facts, tips and suggestions for you here, below.
Questions to be sure you’ve answered before you apply
1: Do I want a 100% bond loan amount or not?
New developments seldom require a deposit, whereas buying an existing property often does. This will make a big difference to how you budget and plan the terms of your loan, so as to be sure you can afford the monthly repayments now and throughout the duration of the terms based on the bond you’re applying for.
Banks will review a deposit as a reference of your financial habits and use this to inform how they score you as a credit risk, so — in theory, but among other factors too — the greater the deposit you are able to commit to, the higher the likelihood of the bank granting your loan.
2: How much disposable income do I have every month?
Beyond the topic of having a deposit (or not), the bank will also want to look at many other factors that contribute towards what should be considered affordable for you. It’s not just about your salary and whether it is more than your (proposed) bond repayment. There are always other costs included in what constitutes your monthly financial obligations.
As a guideline, your bond affordability amount should be approximately a third of your salary, however this is not a hard and fast rule. Think about your car repayments, insurance, average monthly petrol costs, electricity, groceries, medical aid, cell phone bill, tuition fees for yourself or members of your family that you are responsible for — and more. These all add up, and then whether with a rental amount or a bond repayment, the total of all of these can’t exceed your net income.
For example:
Thabiso earns R30 000 a month, so the guideline would propose that his bond-affordability would be R10 000 a month for his home loan. However, if he has vehicle finance with car repayments of R15 000 a month — plus other fixed monthly costs of R10 000 across clothing accounts, cell phone contracts etc. — this leaves Thabiso with R5 000 as his ‘disposable income’. The bank would then determine that Thabiso qualifies for (up to) R5 000 per month on a bond repayment, rather than the provisional estimate of R10 000.
3: Are you applying for your loan on your own or in partnership with someone else?
Your marital status matters and can change the requirements for how the bank reviews your bond application. If you are married in Community of Property for example, you and your spouse will be required to apply together. In this case, banks will review both of your financial status for affordability and feasibility before determining what you qualify for. The bond contract with the bank will then be one you are both liable for. If you are married out of Community of Property, you are then eligible to apply on your own merits and the bond contract with the bank would be between you and the bank exclusively.
It is possible to apply with a friend or relative — or anyone you can commit to sharing the responsibility with. In these cases, the feasibility is scored with both of your financial standings, and the contractual obligations are shared. It goes without saying however that you should be very sure who you pick to be your bond partner. With such a lengthy commitment and the possibility of realising your dreams of a wonderful home, you wouldn’t want to ruin your goals or your relationship with the bank because of changes to a friendship that might leave one of you in an uncertain dynamic.
4: How many years do I want to pay the home loan over?
The most common bond repayment period is 20 years, however this can vary from 10 years in some cases to even 30 years in others. Age and affordability are additional factors that will be considered when the period of the loan is discussed between you and your bank.
For example:
If you are currently in your forties, banks will look at the amount of employable years you have remaining. With this in mind, it is unlikely they will grant you a bond loan repayment period longer than 20 years, however — because of the same considerations — someone in their twenties may qualify for a bond loan repayment period of up to 30 years.
Remember: The longer the loan term, the lower the monthly instalments, however the more interest you will pay over the period. A shorter loan period offers you a shorter period of paying interest on your monthly instalment, but because it is being paid off sooner, the monthly instalments are going to be higher.
What to remember about personal details on your bond application:
★ Transparency is important. Be 100% honest about all your monthly financial obligations. The bank will reference check your credit worthiness, so incorrectly reducing the actual figures on your bond application forms could result in the loan application being rejected. Rather be honest and seek the most affordable solution together with your bank.
★ Fixed costs versus variable costs. Items like groceries and entertainment costs are not considered fixed costs, so these are things you can look at minimising, but be sure you don’t minimize your ability to keep up with these expenses just because you want your monthly obligations to appear lower than they actually are.
★ Your financial history is important. Any judgements or disputes that you may be working toward resolving should be disclosed on your bond application as part of your financial history. Banks are unlikely to grant loans whereby you have a judgement, debt review or defaults against you. If however these are in dispute, you should submit the supporting documents with your application so that the bank can consider your case in its entirety.
It doesn’t serve your purpose or the efforts invested to leave this information out and then risk having wasted both yours and the bank’s time.
★ Self-employed? If you are self-employed, you will be required to have your company’s financial records and tax certificates ready — usually for a period of the preceding two years. In cases like this, the bank will also want to see that you have earned a fixed monthly salary (paid by your own company to yourself). It is important to make sure you have all the relevant paperwork ready so as to avoid delays or a refusal from the bank you’re applying to.
★ Commission-based salary? You may have heard that the inconsistency of a fixed salary amount might count against you. Don’t let this deter you from achieving your dreams of owning your own home, because the bank will consider your averaged-totals over a period of at least six months (including both your basic salary plus commissions), and then will apply the same feasibility and verification rules to determine your affordability.
★ Extra income? Income doesn’t always apply to your salary alone. You should list additional income that may come from — for example — rentals (on other property you may own), allowances on your salary, cash components and more. These additional amounts all add up and will increase your affordability levels, so be sure to include all that information where possible in your bond application.
★ Signing the purchase agreement. You may want to wait before signing a purchase agreement until you’re sure the bank is going to approve your bond. If you are nervous about making one commitment without the other assurance, consider a pre-qualification assessment with a bond originator.
Pursuing this course can also help where the seller’s signature is required on an agreement. They too will appreciate not having to waste time waiting.
There are online platforms where you can carry out this exercise yourself, however we at Reeflords offer free pre-approval services through our affiliation with BetterBond. Talk to us if you would like to explore the details of your bond feasibility.
★ Compare interest rates. A bond originator will help you compare interest rates based on your application — but across the offerings from the different banks. This is why you shouldn’t necessarily sign with the first bank that approves your bond. What might sound like an ineffective difference on your interest rate now, actually plays out as a big saving over time should one bank offer you a lower rate than the others — no matter how small.
At Reeflords, we work with BetterBond to compare interest rates across seven different banking institutions. This service is free to you, our valued customer.
We pride ourselves on providing informed, experienced, real-life insights into the world of renting and buying property. If you have a topic you would like explored in our next blog or podcast, send your suggestions to catherine@reeflords.co.za or post it to our Facebook page where we would be happy to engage about the topics that are important to you.
Think home. Think Reeflords.
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