Home Loans
The current economic environment, high interest rates and inflation means you are less likely to get a home loan as most financial institutions are responding to the global credit crunch by significantly tightening their lending criteria. This means you are a lot less likely to get a home loan unless you can put down a significant deposit and have a good credit record. Besides not being granted a home loan of 100%, or more of the value of the property, you are also unlikely to qualify for a rate of 2% below prime. This is especially bad news if you are a first time buyer. And to make sure that things are truly impossible, at least one bank in South Africa is reviewing its access bond offerings. In addition, things are unlikely to improve very soon. So what can you do? You have a decent job and a perfect home in mind. How can you secure your loan and ensure that you can afford it?
Firstly you need to make sure you can actually afford it. A general rule of thumb is that you won’t be granted a home loan if the repayment is more than 30% of your gross monthly income. If that’s the case, you may as well forget it. The NCA also makes it a requirement for financial institutions to look at all your debt. If you have a lot of debt, you may have some problems. Remember that your credit rating is of the utmost of importance in these matters and if you have a spotty record, things are definitely not going to be easy. To ensure you don’t run into problems, I would recommend you start saving and living frugally from your first pay cheque. If that’s not the case, it isn’t the end of the world either. Living within your means and eliminating your debt will put you in a position where, maybe not straight away, you will be granted a home loan.
Another thing to keep in mind when thinking about applying for a home loan is the interest rate. If the rate goes up by 2-3%, will you be able to afford it? If the answer is no, then maybe you need to think about a slightly cheaper house or maybe wait until you can afford it. The main thing to keep in mind is that a home loan is a long term loan. It will take many years to pay off and a lot of things, good and bad, can happen in those years. You or your spouse may fall pregnant, you may be made redundant or suffer a medical condition.
Once you have taken all these things into account, it’s time to do some comparative shopping. Apply with a bunch of financial institutions and see who offers you the best rate and who actually approves your application. Once you have all the information, you can make an informed decision. A home loan is a big deal and once you start paying of a bond, you are going to need to trim from wherever else you can. This includes your vehicle insurance...