Even though the recent global economic downturn has had a major negative impact on the South African economy and local consumers, the property market is currently experiencing slow but steady improvement. More people want to buy a house and the majority use financing in the form of a home loan.
The number of people meeting the affordability criteria and getting approved for a loan is also growing. This is easily explained with the fact that consumers enjoy greater job security and stable incomes Furthermore, the property prices have gone down and this has also had a positive effect on both the property market and the mortgage market.
More positive news for home buyers
Home loans lenders have lowered their loan approval criteria slightly as they now enjoy greater stability. The approval rate is around 50% of all applications and it is growing. Before the crisis, it was around 80%, but now the lending rules are stricter. In general, the lower rate means that only people who can really afford to repay the loan get approved for financing.
The number of mortgages is also growing. They marked an increase of 63% on an annual basis in 2012. The annual increase rate is now lower, but it is still positive.
Even though more and more South Africans can obtain a home loan, getting approved is not the easiest thing in the world. You will definitely benefit from some practical advice on how to secure financing for buying a property.
Can you afford a home loan?
Your monthly income and expenses must allow you to pay the home loan instalments given the loan amount and the interest rate charged. The lender will determine your affordability based on your gross and net income and on the fixed monthly expenses that you have. Lenders are legally allowed to approve home loan applicants only if their monthly loan payment does not exceed a third of their monthly net income.
Typically, applicants have the highest chances of approval if their repayment to income ratio is lower than 30%. The lower the ratio is the more money the applicant is able to borrow. The lender will look into the disposable income of the applicant as well. The higher it is the better.
The best thing which you can do in order to get approved for the home loan amount which you require is to reduce your existing debt as much as possible. You should try to repay as much as possible of the outstanding balances on loans and credit cards before you apply for a mortgage.
How much can you put down?
It is extremely hard for any home buyer to obtain 100% finance for the purchase of a property from a lender. Most lenders require home loan applicants to place a deposit of at least 10% of the value of the property. People with not particularly good credit history may be required to put down as much as 30% of the property value. In general, the larger the deposit is, the higher your chances of approval are. This is because there is a lower risk for the lender when you take out a smaller loan amount. You should definitely try to save as much money as possible to put down on the property.
What is your credit rating?
The lender will run a credit check on you to find out whether you have defaulted on loans in the past and whether you have judgements against your name. The lender will also look into your current credit accounts and check how well they are served. In order to boost your chances of approval, you have to pay all your bills on time. If you have had some credit problems in the past you should be able to provide a valid explanation for your inability to repay debt.
How stable is your income?
Home loan applicants who have been employed continuously for the past 3 years have high chances of approval compared to others. If you have been working for the same employer during this time, your chances will be even better.
Are you self-employed?
If you are self-employed, your income is considered to be less secure. Indeed, the profit of entrepreneurs is subject to considerable fluctuations due to the chances in the economic conditions. For this reason, lenders are more cautious about approving such individuals.
If you are self-employed, you must provide financial statements for the past two or three years to prove your income. It is best if you have sufficient funds in your bank account to make mortgage payments for at least three months. You can also consider investing in a low-risk security with a steady monthly income for backing up your loan payments.
Take the necessary measures to ensure that you will get approved for a home loan.