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Succesful Home Loan Application

Qualifying Criteria for a Successful Home Loan

We all have it: The fear of rejection. Perhaps that is why the business of securing a home loan is approached with so much trepidation. None of us enjoy waiting in Death Valley for the outcome of a home loan application, or – even worse - receiving a “Dear John” letter in the mail saying that somebody regrets informing us of the application being declined.

Now, unless you have some serious credit issues or unless you are trying to secure a mortgage well above that which you can afford, you need not fear rejection. Succeeding with your home loan application is not all that different from succeeding with anything else in your daily life. All it requires is planning: Know how your application will be evaluated and ensure that you meet the criteria.

The Three Approval Phases

When you approach a lender, you can expect three approval phases. Broadly speaking, these are:

1. Your personal profile
2. Your credit profile
3. The property you wish to acquire

The First Round: Your Personal Profile

When you complete your application form, your personal-, financial and employment details will be requested. The most important elements usually are:

The stability of your income: The lender will want to know that your household income is regular and fairly predictable. If you are employed, they will look at the duration of your employment and are likely to request three months’ payslips to verify your employment details. If you are self-employed, the lender will want to verify the income you receive by checking your bank statements.

Your income and expenditure statement: The lender compares your household income against the potential monthly mortgage repayments. The lender will, on the main, take your disposable income into consideration as a safeguard against potential over indebtedness on your part.

Your asset and liability statement: The bank will compare your asset values against the liabilities you have to gain a better understanding of your Nett worth. The higher the Nett worth, the better your score.

Your age: The banks will compare your age to the proposed mortgage amount. Here is an example: the banks normally require that you make your last repayment by the time that you turn 65. Hence, if you are 55 right now, you could be limited to a ten year mortgage, which in return, could limit the mortgage amount you end up qualifying for.

Collateral and securities: The values of your insurance policies, stocks, shares, assets etc. all have a material effect on your risk profile. The lender will want to know how much of these you have already ceded as security when calculating your available collateral.

The Second Round: Your Credit Profile

If you qualify after the first round, the lender will request credit reports from Experian and Transunion-ITC. They do this to gain insight into your credit behaviour and to determine what the risks associated with granting a mortgage to you could be.

Here too, you could exert some influence. By law, you are entitled to a free copy of your credit report from both credit bureaus every year. It is a good idea to get yours before applying for a home loan. Once you receive your reports, go through it with a fine tooth comb. Check whether there are anomalies or discrepancies that adversely affect your score. Submit a written request to the bureaus to correct these, together with documentation that could support your request.

The Third Round: The Property

Finally, the lender will evaluate the property. One of their assessors will assess the value of the property to verify that it provides adequate security to support the loan. If the home is a sectional title unit, the lender will also check that the Body Corporate’s financial statements are healthy and that their rates and taxes are up to date.

If you checked that the home was not overpriced and, in the case of a sectional title unit, that the financials were in good shape before signing your offer to purchase, you need not concern yourself too much with this one.

To conclude

Planning for a successful home loan application should also involve consulting a mortgage originator to help you get an idea of how big a mortgage you would qualify for before embarking on the hunt for a new home.

More often than not, planning pays off. It may well make all the difference to how the tale of your home loan application will pan out in the end.

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