How to Qualify for a Home Loan
Buying a property is a big financial commitment with mortgages, down payments and credit scores –it can feel like a daunting process. However, providing a safe home for you and your family is also a very exciting prospect that will add stability and security to your life. Unfortunately, due to the price of a new home it is very often impossible for individuals to buy properties with their own money – this is why most prospective homeowners apply for home loans from their bank, enabling them to purchase a house or an apartment.
If you are interested in buying a home, here is what you need to know about how to qualify for a home loan.
What is a Home Loan?
A home loan is basically an advance that is given to you by an institution such as a bank, where the home you are buying becomes the security in the event that you are unable to make your loan repayments. Once you have obtained and registered a bond, your bank or home loan provider will retain the title deeds of the property pending the full repayment of your loan, upon which the deeds will belong to you.
How does it Work?
There are two main aspects that affect your home loan, the first is the amount you are borrowing from the bank and the second is the amount of time you take to pay the loan back. Normally, if you take out a home loan it is mandatory to pay back monthly instalments, with interest over the decided term, generally 20 or more years. With interest rates continuously changing this will also influence the cost involved.
The rule of thumb, when it comes to monthly home loan repayments is the one percent rule. This rule is used as a quick way to determine the amount you would pay. For example, if you buy a R500 000 property, your repayments would be R5000 per month.
“If you can’t afford the loan on your own income, or if you are married in community of property, you need to apply jointly, which means both applicants are responsible for the monthly repayment.”
Do You Qualify?
If you are a stable salary or income earner, you are already seen as a favourable candidate for a home loan. The bank or service provider will look at your income and work out what amount you could pay on a monthly basis – this being one of the main factors of whether or not you qualify.
Other things that banks consider:
- Age – the younger a person’s age the ‘longer’ they have to pay the bank.
- Full time employment – banks will not lend money to someone who is a risk; your employment status tells them that you are able to make your monthly repayments.
- Good credit record – your creditworthiness will directly influence whether or not your loan is approved. This is why it is important to pay your bills on time and in full.
- If your disposable income - i.e. gross income after monthly expenses, will be enough to pay the monthly instalment.
Keep in mind that the price of the house is not the sole cost that you will incur when buying a property – transfer duties, legal fees and many other expenses applies. However, because Housing SA sells affordable new development properties off-plan you won’t have to pay any transfer fees.
Before You Apply
Just like buying a home without a loan, you have to first be certain of what you are looking for in a property. Consider the neighbourhood, what your family’s requirements and needs are and how much you are willing to take out/ spend on a property – you can do so by visiting the area and contacting a property professional who will be able to give you some insights.
Following this, shop around for your home loan, there are many places that provide home loan services at various different rates, so make sure that you look around for the best possible deal. When buying a home through Housing SA, we will apply to all the banks on your behalf to make sure that you get the best chance of being approved for a home loan, as well as receive the best interest rate on your loan.
When applying for a home loan, or whether you would like to find out more about the home buying journey, it is advisable that you contact and work with a trusted real estate agency or property professional who will be able to provide you with an expert understanding of how it all works. Housing SA offers homebuyers the opportunity to obtain an address that will suit all their needs, while giving each and every client the support and guidance they need to secure a home. Contact us today to find the right property for you.
Author: Housing SA