Walking a maze to that home loan

WHETHER it’s because you’re tired of dealing with landlords or you’re keen to wake up surrounded by four walls you can call your own, once we’re earning our own money most of us thinks about buying a home.

Some of us breeze through the process with little or no complications, while others complain about the multiple hurdles they have to clear.

Many pull out of the process midway and, of those who do stick it out to the end, some end up being rejected by banks.

Added to this are the horrendous number of forms to be filled out, confusing terms and thousands of rands which have to be paid over for things such as transfer costs and bond registration.

This begs the question then of not just who qualifies for a home loan, but what the entire process entails and a breakdown of all of the costs involved.

Eastern Cape regional manager of SA Home Loans Gary Bradfield said any South African citizen can apply for a home loan.

According to Bradfield, there are five basic criteria used to determine eligibility during the application process.

The first, he said, is permanent employment, followed by a sufficient salary which proves the applicants’ “buying power”, affordability, an acceptable credit record and security.

“Permanent employment suggests naturally that an applicant is permanently employed. In certain instances, a contract worker in a contract with a substantial term attached to it, can be considered,” Bradfield explained.

“The second requirement is that the applicant’s salary is sufficient to prove “buying power”. Essentially, this means that as a rule of thumb, the repayment should not exceed 30% of the applicant’s gross salary.

The third requirement is affordability. This is simplistically determined by comparing the applicant’s monthly commitments, as well as their realistic household expenditure, against their net income.

“When this is being determined, provision is also made in order to ensure that there is a sufficient monthly surplus in the family budget to absorb rate increases should the market present these. This all forms part of responsible lending.

“The fourth requirement is an acceptable credit record. Every consumer has a credit record that records the last 24 months of credit behaviour.”

Bradfield said the credit record keeps track of the amount of debt the consumer has and how that debt is managed, while a credit score is generated for each consumer based on their credit behaviour.

“The last requirement is acceptable security. This simply means that the property to be mortgaged conforms to certain minimum standards. This is both to protect the applicant, as well as the lender.”

To kick-start the home loan process, applicants are required to provide a copy of their identity documents, a marriage certificate if married, three months’ worth of salary slips plus bank statements and a copy of a deed of sale.

Bradfield said the need for a deposit is determined by the level of risk which the application may present to the financial institution.

“Risk will be determined by factors such as credit history, monthly commitments and affordability, and the stability of employment.

“There are many benefits to paying down a deposit, such as a lower interest rate, which means lower monthly instalments and lower overall interest repayments over the period of the loan,” he said.

“Each approved home loan is granted a certain interest rate. This interest rate is applied to the actual loan amount. Interest rates are determined through a number of factors relating to the risk of the borrower, so the deposit amount, employment status and credit profile will all be factors contributing to the interest rate.”

According to Tanya Coetzee from East London-based law firm Drake Flemmer & Orsmond, it is important to keep in mind that there are usually two sets of fees payable when buying a property.

The first will be the transfer costs, which will include transfer duty if you are buying a property for more than R900 000. This is a tax payable to SARS.

If it is necessary to finance the purchase of the property, bond registration costs will also be payable, including an initiation fee levied by the bank. Both these transfer and bond fees are calculated according to a sliding scale tariff as prescribed by the Law Society.

“The higher the purchase price or bond amount, the higher the costs. Both these fees will be payable to the conveyancer attending to the transfer and bond registration process.

“For example, if you are buying a property with a purchase price of R1-million and bonding the property for the same amount, your transfer costs will be approximately R25 000 and your bond costs will be approximately R22 500. This does not include an initiation fee charged by the bank of about R6 000,” she said.

Finances are the major reason many existing and prospective home owners are despondent about either the properties they own or their hopes to acquire property in the future.

This was revealed by respondents who took part in Absa’s Homeowner Sentiment Index (HSI) survey which was conducted on 1 000 existing and prospective homeowners in the major urban areas of the country.

The survey – which measured the level of positive sentiment people have regarding property transactions ranging from buying, selling, investing, renting and renovating property and market conditions – revealed many are holding off on their property plans until there is more certainty about the economy and its impact on their finances.

Results also revealed that though respondents started last year with a positive outlook on the residential property market, the deterioration of economic activity in the last part of the year gave consumer finances a knock, which dropped confidence levels.

But are people still buying houses? Emmy Hammond from Lew Geffen Sotheby’s International Realty said things were quiet on the property front right now with not many houses being sold.

Hammond said of the sales they do get, property in the higher end of the market was in great demand, with houses sold in the price range of between R1.2- to R6-million.

“Beacon Bay is the most popular suburb, although very few people are buying right now,” she said.

“The reason could be that banks are not willing to give loans at the moment and we’re not really sure why, there are no explanations given. Loan applications are just being rejected. We are still getting people coming in and looking to buy houses but without the financial backing of the banks many are not able to.”

Despite this, low- to middle-income earners will be pleased to note that the Eastern Cape has been named the province with the highest percentage of affordable houses, according to a report by Private Property.

In a story which appeared in BusinessTech last week, Mdantsane was listed as the cheapest area to live in within the province, with the average asking price of a house starting at R365 000.

Affordable housing is defined as a property with an asking price of no more than R600 000 which includes apartments, flats, townhouses and free-standing residences with at least one bedroom. — zisandan@