If you want to negotiate a better price on a property, then you need to have the funding available. If you are purchasing in cash, it is easy enough, but even if you require home loan funding, obtaining pre-approval for a home loan can put you in a better bargaining position.
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Tiaan Pretorius, manager for Seeff Centurion says you do not want to miss out on your dream home just because you did not qualify for a big enough bond. Besides giving you better bargaining power, pre-approval will also make your offer stand out compared to buyers who are not pre-approved.
Gerhard van der Linde, MD for Seeff Pretoria East says it is best to make an offer which is as "clean" as possible. The less restrictive conditions there are in the offer the better the chance of it being accepted.
There are in fact several advantages for buyers. You can shop for a home with confidence and know exactly how much you can buy for. Sellers are more likely to accept the offer as they know you are a serious buyer, and you could potentially negotiate a better price as you are a qualified buyer.
READ: How to create a strong joint bond application
Buyers can either apply for pre-approval at their own bank, or a bank of choice, or they can make use of a mortgage originator, which works with all the banks, and often offers a better chance of securing a favourable loan, perhaps even with a rate concession.
The pre-approval must be done formally, and not just an online test to see if you qualify. The formal approval process will take various information into consideration including a credit and risk assessment. Van der Linde says further that the prospective property buyer will usually need to have a current credit record which shows an ability to manage credit with timeous payments.
A credit history is usually built over a period as you need to have a record which shows that you pay on time and do not skip payments. It should also show that you do not overextend on credit as this will affect your credit score. If there are any defaults on your record, you will need to wait a few months for it to correct before applying for home loan pre-qualification.
The National Credit Act regulates credit. In terms of this the banks must ensure that the buyer qualifies for the credit and can adequately cover the monthly repayments.
As a rule of thumb, the home loan repayment must not be more than one third of your monthly income. If you are buying jointly with a spouse or partner, then you should add the incomes together so that the assessment can be done on the combined income. In addition to details of all your income, you will also need a list of expenses and show that you have adequate surplus income to cover the home loan repayment amount.
Once you have the pre-approval you can then start house hunting with confidence. Although the bank will again do an assessment once the offer to purchase is accepted by the seller, it does put you in the front of the queue as a prospective homebuyer.
Pretorius says further that once the buyer has secured a home loan, they must maintain their credit and not make further debt until the transfer of the property is registered. The banks can do another credit assessment and if anything adverse shows up, it could put you at risk.
READ: What's the 'golden' credit score number for bond approval?
An article published on Property24 on October 12, 2018, features Mpho Ramatong, FNB Home Finance Division Channel Head: Housing Schemes, who said when lenders assess an application, affordability, which considers your total income relative to living expenses, is an important measure used to determine whether you would be able to keep up with monthly home loan instalments or not.
This can further influence the home loan amount and interest rate you would be quoted for the term of the loan.
“Therefore, taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” said Ramatong as she unpacked some of the common mistakes that consumers make when completing the expenses portion of a home loan application:
1. Duplication
Some applicants fail to get a good home loan deal due to the duplication of expenses.
For example, if you have declared funds that you prepay into your credit card monthly, which you may be using to fill up for petrol and for groceries, you need not complete the groceries and petrol expenses portion in the form.
Ramatong said another form of duplication may arise if you are co-applying with a partner or individual that you stay with. In this instance, only one applicant may declare shared living expenses. For example, rent, water and electricity costs.
If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses.
2. Dishonesty
Being dishonest about your living expenses may lead to your application being declined.
When applying for a home loan, banks require that you submit a payslip and six months’ worth of bank statements, amongst other documents. As a result, any disparity in the expenses portion of the form can easily be picked up by the bank.
3. Entertainment
Be careful not to mistakenly declare a high entertainment expense by failing to separate needs from wants.
For example, a need could be monthly costs for educational or recreational activities. A want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants, and so forth.
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Finally
“If you aren’t sure about how to correctly declare expenses, it is advisable to consult your bank or an expert to avoid making costly mistakes,” said Ramatong.
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