Home ownership can be reality and not only a dream. You can purchase any type of property be it an apartment, house or a large mansion with the use of a home loan. This is the main source of financing which home buyers use. Such loans are readily available to those who want to refinance as well. There are various financial institutions that offer such products. The list includes banks and smaller lending companies.
How to Secure the Best Deal on a Home Loan
It is usually easier for first-time home buyers to obtain a loan because they are less likely to default on the payments. Besides, there are various initiatives designed for stimulating home ownership which these buyers can take advantage of. At the same time, not all home loans are created equal and you have to watch out for the details.
Loans for First-Time Home Buyers
Most first-time home buyers need to obtain finance from a lender in order to purchase a house. They can select from a wide variety of home loans. However, these loans typically share some common features which are designed to benefit this specific group of buyers. These features are:
- Lower than the typical down payment
- Options for deferred payment
- Lower fees
- Interest subsidising
You can expect to obtain one or several of these benefits, depending on the loan program and on your credibility as a borrower. In some cases, all of these benefits may be offered together.
Who Are Home Loans for?
These loans are designed for people who do not have sufficient savings or assets which can be liquefied in order to finance the purchase of a property. They are available to all South African citizens above the age of 18. The different loan programs have different requirements, however. The common ones include the earning of employment income and good credit history.
How about Limitations?
Lenders set a limit to the amount of money that you can take out in order to finance the purchase of a property. This will have a direct impact on your choice of property. There are some general limits and some which are determined based on the income of the borrower. Wealthier individuals may be able to obtain a larger loan amounts.
The property that you purchase has to meet certain requirements. This is done to ensure that it has the value claimed by the seller. This will protect both the home buyer and the lender from issues in the future.
Hurdles to Watch Out for
There are some possible issues which you need to be aware of. The first one has to do with the loan amount limit. Given this limit, you may not be able to get the home that you want. That is why you need to be more flexible about your housing options. It is best if you determine how much you will be able to spend in advance in order to find the right property.
Since the benefits are designed to stimulate home ownership, you will most certainly lose them if you sell the property soon after purchase. If you do not plan to stay long on the property, then you may postpone the purchase of a home.
Another thing to watch out for is the charging of tax on some of the benefits which you will get. This will certainly push the cost of borrowing up and you should be able to settle with the higher price.
The loan program that you choose may undergo changes in the future. Provisions for possible changes are made in the terms and conditions of the loan agreement. That is why you have to read them carefully and to ensure that no possible changes will affect your ability to repay the loan.
In general, when you are taking out a home loan, you have to weigh carefully both the benefits and drawbacks. This will help you make the right decision.
Your Home Loan Questions Answered
The benefits of home ownership are quite clear. You will have your own place where you and your family will feel safe, secure and happy. In financial terms, the home is a valuable asset, whose value will certainly increase over time as historically property prices have always been going up. The big question is how to finance the purchase. Most people get a home loan from a lender. Here you will find the answers to all of your questions on obtaining home finance.
What kind of interest rate can I expect to pay?
The interest rates vary slightly from lender to lender. In general, they are determined by the market so they are subject to fluctuations. It is important to note that most home loans in South Africa come with adjustable interest rate. It is pegged to a market index and it can move up or down long with the index. The interest rate on any specific loan is determined based on individual factors as well. These include the applicant's credit rating and credit history. Individuals who have blemishes on their credit record can expect to pay higher interest rate.
Is the home loan affected by your current credit?
Yes, it is affected. The lender wants to ensure that you will have sufficient money left to pay the monthly home loan instalments after you pay all of your other debt obligations. Generally, the greater your current credit is the lower your chances of securing a home loan are. Even if you get approved, you will be able to borrow a smaller amount of money. That is why it makes sense for you to repay as much of your existing credit as possible before applying for a home loan.
Can loans for home improvement increase the balance on the home loan?
If you borrow the money against the value of the house, the outstanding balance on your home loan will increase. However, you are not required to do so. You can take out a personal loan to finance the home improvements. In this case, however, you will most certainly have to pay higher interest. Your other option is to use your savings for financing home improvements. This is a worthwhile investment since the improvements will boost the value of your property.
Are there home loans with guaranteed approval?
No, there are no such loans. Lenders are legally required to run a check on each and every applicant and to confirm that the person can repay the loan. This is done to ensure that reckless lending, which is dangerous for both parties, can be avoided.
How is a home loan repaid?
Typically, the borrower has to pay an instalment every month. With the payment of each instalment, the outstanding loan balance is reduced and the borrower earns more equity in the property. The monthly instalment consists of two parts - the first part is the principal payment and the second part is the interest payment. Initially, the interest payment is bigger but then the principal payment grows and takes the bigger chunk. With bigger principal payment, the owner gains more equity in the property.
Can I keep more than one home loan at the time?
Yes, you can. Some people choose to buy a second house, a holiday home or an investment property and they take out a second home loan for this.
What happens if you are unable to pay one monthly instalment?
In this case, the lender will contact you to find out why you have not made the payment. Trying to hide is the worst strategy which you can adopt. The best thing which you can do is to apply for loan modification. If you have valid reasons for lagging behind with the loan repayment, the lender can offer various solutions. The loan's term can be extended so that the monthly payments become smaller. It is also possible for the lender to lower the interest rate. The lender can defer the repayment as well.
Are there special benefits for first-time home buyers?
There are loan programs especially designed for such buyers. These programs are more easily accessible and typically work to make finance more affordable. You should do some research to find what special programs banks and smaller lending companies have to offer.
How does home loan refinancing work?
When you refinance, you take out a new home loan to repay the balance on the existing one. People typically opt for refinancing in order to take advantage of a lower interest rate and/or to reduce their monthly payment. In order for you to be able to refinance, you have to have sufficient equity in the property and good credit rating. It is important to note that even though the new loan may come with lower interest and be cheaper overall, there are closing costs associated with refinancing that the borrower has to pay out of their pocket. It is also possible for the costs to be wrapped into the new loan's principle or to be added to the loan in the form of higher interest. In any case, the cost of the loan will increase.
Can a home loan have two separate parts?
This kind of loan structure is available from several lenders. With it, there are two loan parts. On one part, fixed interest rate is charged. Adjustable interest rate is charged on the other. Typically, the borrower is allowed to make extra payments on the floating part without a penalty in order to lower the risk associated with the adjustable rate. It is up to the borrower to decide on the sizes of the two parts.
How can I get a home loan with bad credit?
You should try to repair your credit as best as you can. You should also talk to a financial advisor who will give you an idea about your chances of getting approved. Look for lenders who are willing to work with people who have bad credit. Even if you get approved, you can expect to pay higher interest rate so you have to ensure that the home loan will be affordable to you.
How can I improve my credit before I apply for a home loan?
The most important thing is for you to be a reliable payee. Pay your bills and outstanding credit card balances on time. Do not close accounts which you have just repaid. You should try not to use more than 30% of the limit on your credit cards. You should keep your accounts open and use them.
Are there home loans with no credit check?
No, there are no such loans. Each lender has to evaluate your credibility as a borrower in order to make a decision whether to grant you the funds. If you have bad credit, you can consider applying for loans especially designed for such individuals. In this case, you will have higher chances of approval, but you will have to pay higher interest rate as well.
Can you get a home loan if you have gone bankrupt?
There is such possibility, but you have to repair your finances and your credit rating. As a start, you need to talk to a financial advisor who can provide an effective strategy for achieving your goal.
Overall, you have to be well prepared for taking out a home loan. You have to prove that you have stable employment income and good credit history. You have to be absolutely certain that you will be able to make the monthly payments.