By Cilleste van der Walt
There is nothing that compares to the feeling of buying one’s first home: It is exciting, stressful, fulfilling and confusing, all at the same time.
Before you can have that independence you long for, or stop paying rent to the advantage of someone else’s bond, or have the freedom of painting the house the colour you want to, you need to know a few things. The search for the perfect home is like a kid being let loose in a candy shop, the most excitement you’ll have in years, but how do you go about getting started with the buying process?
It is crucial to know how to secure a home loan, what the buying steps are and which documents and procedures you need to follow in order acquire that dream home.
Bank loans vary. Do your homework about which bank has the perfect loan for you. Your budget is the first thing you need to get in order: Decide how much you or the both of you (if a couple is buying for the first time) can spend. Be realistic. You may be dreaming of owning that mansion, but if your income does not allow you to budget sufficiently, you will not be able to secure a home loan. If you choose to go with a joint loan, however, you will be able to apply for a bigger loan than would have been the case if applying by yourself.
Another key thing to consider is whether you can afford a deposit towards the loan, as this will affect a number of things, including the interest you may need to pay on your loan. Once your loan application has been received, the bank will determine the loan-to-value ratio (LTV). This is basically the ratio between the loan you require and the value of the property in question. The lower the LTV ration, the lower your interest rate will be.
The following is required to put together your loan application. In the case of a joint loan, both parties will need to provide:
- Copy of their IDs
- Offer to purchase
- Three months’ bank statements (full-time employees)
- Three payslips or, in some cases, up to six months’ payslips
- Proof of physical address
If you are self-employed, you will need:
- Proof of monthly income
- Six months’ business account statements
- Six months’ personal bank statements
Keep this in mind
In South Africa, you need to meet certain criteria to qualify for a home loan. You need to be over 21, be employed for at least two years (or self-employed for at least six months) and be earning a minimum of R10,000 joint or single income and have a clear credit history with no defaults or judgements.
• Location: This is very important: Explore the area to see if you would have schools, shops, hospitals and so forth close by. If security is important to you, the right location could be all you need.
• Check the market and don’t rush: Chat to your local estate agent and find out if it is a good time to buy or if you need to wait a little.
• Check the value: You want a home that will increase in value as time goes by. For example, if you buy a property in an area zoned to include low-cost housing, your home’s value may fall. You may end up paying a bond that is far higher than the house’s actual value.
• Check your finances: If you’re a first-time buyer, you may be offered a loan that covers deposits and other home-buying related costs. But if you have a deposit (after saving), this reduces your overall payments. Be certain that your budget allows for the monthly instalments you will be paying and for fluctuations in the interest rate, which will affect your instalments.