What is required to get Your Home Loan Approved in Todays Market
When you look at the most recent statistics of home loans approved in South Africa the answer to the question, “What is required to get a home loan approved today?” is probably – A Miracle! According to statistics released 61.2 percent of all home loans were declined in February 2009. Before you get totally depressed, rather look at the positive: 38.8 percent of home loan applications were approved. So, what do you need to be one of the 38 percent?
What does your credit score look like?
If you have not looked after your credit score… then the news is not good, you will not qualify for a home loan. So, before you even think of applying for a home loan, have a look at your credit score. You are entitled to a free report once a year, make use of it. The banks look at different things on a credit report such as your payment history, the total amount of your debt, the type of credit you use (credit cards, overdrafts, personal loans) and recent debt you took on.
AFFORDABILITY, FINANCIAL RESPONSIBILITY and a STABLE INCOME
If your credit record shows that you often pay late or are in arrears it is a clear indication to the bank that you cannot afford your current debt. If you cannot afford your current debt how are you going to afford additional debt in the form of a home loan?
Taking out a home loan is a huge financial responsibility and the bank is looking for proof that you handle your current debt in a responsible manner. There are many online calculators on the banks’ internet sites you can use to calculate what you qualify for in terms of a home loan. The best ones to use are the affordability calculators where you can also input your current monthly payments on all your debt and other expenses.
The bank will also want to see that your income is stable; self-employed persons or commission earners will need to prove this aspect of their income before a home loan will be granted.
The National Credit Act
The National Credit Act has forced banks to lend responsibly. The banks no longer use the 30% home loan repayment to income ratio when deciding to grant a home loan, it’s all about affordability and your overall indebtedness.
You are going to need a deposit
The days of 100 percent, or even 108% loans, are something of the past – at least for now. You will be required to put down a deposit. If you own a current property with equity you can use this as your deposit, once you have sold the property. The percentage deposit you are going to require is not a set amount but on average you are looking at twenty percent.
If you don’t have money for a deposit, plus all the other costs applicable when buying a house, you will waste your time and set yourself up for disappointment. Start saving now!
Securities or Collateral
If you have investments or policies you can cede as collateral security, or you qualify for a housing allowance you need to inform the bank of these details. This will improve your chances of having your home loan approved.
Make sure you have all your documentation in order. You will need to produce a copy of the offer to purchase, your ID, proof of your current income, marriage certificate (if applicable) and proof of your current address. You will also be asked to provide six months bank statements as well as home loan statements (if you have a current home loan.) The bank will also ask you to complete an expenditure statement and they will also calculate your assets and liabilities to see what your net worth is.
What if I am told I do not qualify?
First of all, it’s not the end of the world. See this as an opportunity to get your financial house in order. Start by sorting out your credit record. Paying your current debt on time is probably the most important thing you can do. Cut up those credit cards – they are a debt trap if there has ever been one. Reduce your overall debt.
Start saving for that deposit: Work out how much money you need for a deposit and then set yourself a target date of when you want to buy your house. Calculate how much you must save monthly to reach your target. In South Africa we don’t seem to know the meaning of the word saving any more. Try it, it’s a wonderful feeling to see your savings balance grow, instead of your debt.
When you do apply
Applying online for a home loan and dealing with a qualified mortgage originator, is your best bet. They will help you every step of the way, can provide you with good advice and save you time and money.