After weeks and weeks of scouring the Cape Town property market, you’ve finally found your dream home—but now you’re concerned about the bond application process, or if you’ll even qualify for one?
In today’s hard-hit economy, applying for a bond can be quite overwhelming. While consumer confidence may still not be at its all-time highest, statistics indicate that bond approval rates have increased. But most often, buyers do not fully understand what banks consider when approving or declining an application, decreasing chances of approval. If you want to avoid set-backs and increase your chances – consider these six common pitfalls.
1. Check your affordability
Before you even apply for a home loan, check whether you can afford one. Monthly repayment affordability is calculated on joint net surplus income after debt commitments and living expense deductions. It’s crucial to be realistic, as owning a property comes with far more expenses than just the monthly bond and rates. Bonus Tip: Test the waters by getting pre-qualified with Tyson Properties a leading Real Estate Agency in South Africa.
It’s crucial to be realistic, as owning a property comes with far more expenses than just the monthly bond and rates.
2. Know your credit record
The historical management of your finances matters, so find out what your credit report says about you before applying for a bond. Each South African is entitled to one free credit report, once a year, from a registered credit bureau – use yours. Ensure that you are not in arrears and look out for accounts that reflect “late payer” as these will impact your approval. Take the corrective measures to repair your report before applying.
3. Reduce your credit card debt
If you have three credit cards, each with a limit of R150 000, the bank will look at those accounts collectively as a potential R450 000 debt, even if the money is still sitting in your account. To satisfy the affordability ratios required by the banks, ensure that you have as minimum debt as possible.
Ensure that you have as minimum debt as possible.
4. Secure the best interest rate
Above and beyond the actual purchase price of the property, your interest rate determines how much you will pay the bank. As a result, one of your most important goals should be to secure the lowest interest rate possible. Do this by purchasing a property in an up-and-coming area (declining areas pay higher interest rates), paying a bigger deposit on the home loan, or applying to multiple banks to secure the best deal.
5. Put down a large deposit
The higher the deposit, the greater your chances of securing a bond. Although some banks do not require a deposit, a large deposit will place you in good standing with banks. Not only will they view you as a lower risk, but a large deposit will also reduce your interest rates, potentially saving you hundreds of thousands down the line.
A large deposit will also reduce your interest rates, potentially saving you hundreds of thousands
6. Consider the term of your bond
Most people take out a 20-year bond, but if you’re struggling with affordability, you have the choice of taking out a 30-year bond. While the upside is reduced monthly repayments over 30 years, which gives you the freedom to have more liquid cash, the downside means by the end of the 30-year term, you would have paid a significant amount more because of interest charged over a longer-term.
For instance, on a bond of R2 million with a R200,000 deposit and a 9.75% interest rate, extending the term to 30 years may reduce the installment of around R1608 per month, but the total repayments made by the end of the 30-year term will be R1 469,728 more.
Although every bond application is unique and assessed on its own merits, taking time to understand what banks consider when assessing an application will go a long way to helping you purchase your dream home.
To begin the process of securing your dream home, get in touch with Tyson Properties and lets talk.
Tyson Properties Atlantic Seaboard – 021 434 0615
Tyson Properties Western Seaboard – 021 556 2335
Tyson Properties Southern Suburbs – 021 761 6539
