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Home Loan Tips

Home Loan Tips

If you want to buy property, don’t dally. The favourable buyers’ market we are currently experiencing is not going to remain favourable for ever. In fact, if the property-, home loan- and banking industry experts are correct, the tipping point will be reached no longer than a short twelve months from now. When it does, the upswing could be breathtakingly quick.

Projections done by Absa Home Loans indicate that the price of residential property could increase by as much as 60% between end 2009 and 2014. This means that that an average R 950,000 141m² – 220m² house is likely to cost in the vicinity of R1.5 million in six years time.

But, there is a conundrum to solve. Although the current adverse property market conditions may have served to make your dream home less expensive, the prevailing economic conditions have made the home loan with which to fund your dream, harder to secure.

Fortunately, harder does not mean impossible. We put together five home loan tips that could prove to be of value should you decide to strike while the iron is hot.

Home Loan Tip #1: Become credit fit

The National Credit Act made it possible for all consumers to request a free copy of their credit report from both the Credit Bureaus each and every year. Your credit report is accorded a significant weighting during the evaluation of your home loan application: it is one of the main factors that influences whether you qualify for credit or not; it impacts the amount you qualify for; and it determines the interest rate you stand to pay.

For this reason, you may want to see your credit report before the bank does. Go through every last detail with a fine tooth comb. Check whether there are items that adversely affect your rating, and be on the lookout for incorrect records. If there is anything untoward that should be amended, write to the credit bureau explaining why the changes need to be made. Remember to submit supporting documentation if you have any.

Should the credit bureau in question not respond or unreasonably declines your request, you can approach the credit ombudsman for mediation. This may seem like quite a tedious undertaking, but it certainly is well worth the effort in the end.

Home Loan Tip #2: Increase your disposable income

The criteria for affordability have changed. The banks now consider your disposable income when they calculate the size of home loan you qualify for.

Your disposable income, which is the amount of money you have left in your wallet after meeting your financial obligations every month, can be increased if you give it some thought: You could speed up the repayment of your personal loans, settle some of your other small debts, shop around to save on your insurance payments and down-scale the car you are driving.

For every R 1,300 you save on your monthly financial obligations, you will increase your home loan spending power by a full R 100,000.

Home Loan Tip #3: Work with a mortgage originator

Securing the services of a mortgage originator is a much better idea than taking a DIY approach. The mortgage originator will, by looking at your personal set of circumstances, be able to tell you whether you are likely to qualify and, if you do, how much you could probably buy for.

Working with a mortgage originator improves your chances for success: They understand the idiosyncrasies of the various banks, know which paperwork to submit and how to motivate your application. Once you are approved, they will negotiate the best possible interest rates and help you through the process until your home loan is finally registered. The banks, and not you, pay for the services rendered by mortgage originators.

Home Loan Tip #4: Obtain a pre-approval certificate

If you want to avoid disappointment, you can ask your mortgage originator to apply for a pre-approval certificate from one or more of the banks. The pre-approval certificate is an in-principle decision made by the bank to finance your purchase, and is usually subject to their valuation of the property you decide to buy.

Home Loan Tip #5: Only bite off what you can chew

Your home loan is not the only additional monthly expense you will face when buying a home. You will also have to pay rates & taxes, homeowners insurance and, if your existing life cover is insufficient, additional life insurance premiums. Be sure to budget for these.

You would do well to leave some headroom for further interest rate increases. Although these are likely to start tapering off in about twelve to eighteen months’ time, you need to be able to cope with at least a further 2%, just to be on the safe side. If you want to have the peace of mind knowing what your home loan will cost for the next eighteen to twenty four months, consider a fixed as opposed to a variable interest rate.

To conclude

The journey does not end once you crack the nod from a bank. It continues and, considering that it could last for twenty years or more, becoming home loan savvy is not a bad idea.

Make a point of reading up on how you could save on the interest you pay and how you could go about to reduce the repayment term. Also gain a clear understanding of how you should go about using your home loan for big ticket purchases and as a debt consolidation instrument.

Finally, remember that the mortgage industry is constantly changing, and that it is a very good practice to shop around from time to time to ensure that you are still enjoying the best possible home loan deal from your current bank.

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