How to … fi­nance the pur­chase of a prop­erty

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

Most peo­ple ap­ply to the bank for fi­nance to buy a home – this type of loan is known as a home loan or mort­gage bond and, rel­a­tive to other loans, has a low in­ter­est rate.

Since the Na­tional Credit Act (NCA) was in­tro­duced in June 2007, the process of ap­ply­ing for a home loan has changed. You are re­quired to pro­vide the bank with the fol­low­ing doc­u­ments and in­for­ma­tion: ◆ Iden­tity doc­u­ment; ◆ Salary slip; ◆ Bank state­ments for the three months prior to ap­pli­ca­tion;

◆ Proof of your res­i­den­tial ad­dress as re­quired by the Fi­nan­cial In­tel­li­gence Cen­tre Act (Fica);

◆ Full de­tails of your ex­penses – joint ex­penses and joint in­come if you are mar­ried.

When you ap­ply for a home loan, you can ei­ther ap­ply di­rectly to the bank your­self or you can use a bond orig­i­na­tor. Bond orig­i­na­tors will take the doc­u­ments and in­for­ma­tion sup­plied by you and will ap­proach all the ma­jor banks on your be­half. They will then tell you which banks have been ap­proached on your be­half and what in­ter­est rate each one has of­fered you.

Ac­cord­ing to the NCA, the max­i­mum in­ter­est rate that can be charged on home loans is cal­cu­lated by mul­ti­ply­ing the repo rate by 2.2 and adding five per­cent­age points. This works out to 20.4 per­cent at the cur­rent repo rate of seven per­cent.

Some­times bond orig­i­na­tors will try to steer you to­wards a cer­tain bank be­cause they get a higher com­mis­sion with that par­tic­u­lar bank. For this rea­son, it can some­times be worth your while to fol­low up with the banks your­self af­ter you have had feed­back from the bond orig­i­na­tor. Un­like fi­nan­cial in­ter­me­di­aries, bond orig­i­na­tors have no obli­ga­tion to dis­close their com­mis­sion to you. AF­FORD­ABIL­ITY TEST In terms of the NCA, the bank, as a po­ten­tial cred­i­tor, has the re­spon­si­bil­ity to as­sess your fi­nan­cial sit­u­a­tion by do­ing an af­ford­abil­ity test to de­ter­mine whether you are able to af­ford the home loan re­pay­ments, tak­ing into ac­count your ex­ist­ing fi­nan­cial com­mit­ments.

If you later de­fault on a home loan and it can be proved that you were not able to af­ford the loan when it was granted to you, the bank can be found guilty of “reck­less lend­ing”. If this is the case, the bank con­cerned may be pre­vented by law from re­pos­sess­ing the prop­erty.

Also, a de­cline in real house­hold in­come, de­te­ri­o­rat­ing dis­pos­able in­come and a de­cline in house prices has made banks more wary about who they lend money to and on what terms.

For th­ese rea­sons, get­ting a home loan has be­come a lot more dif­fi­cult than it once was.

Be­sides the banks, you can also ap­proach non-bank spe­cial­ist lenders such as In­te­ger and SA Home­loans. How­ever, make sure that you un­der­stand the terms and con­di­tions of any fi­nance agree­ment you sign. CREDIT CHECK When you ap­ply for a home loan, the bank will look at your credit pro­file as well as your credit record.

Your credit pro­file is stored on a na­tional data­base, avail­able to all the banks, show­ing how much credit you have at your dis­posal – for ex­am­ple, what your credit limit is for your var­i­ous credit and store cards. The bank is then able to use that data, to­gether with your in­come and ex­penses, to as­sess whether you can af­ford to take on any more debt.

Your credit record is stored by the credit bu­reaus and re­flects what type of credit cus­tomer you are. For ex­am­ple, if you are al­ways a few days late with your debt re­pay­ments, you can be recorded as a “slow payer”, even though you have not ac­tu­ally missed any pay­ments. Sim­i­larly, your credit record will show if you have any judg­ments against you or if you have been black­listed.

If you de­fault on a credit re­pay­ment and are black­listed by the credit bu­reaus, the black­list­ing re­mains in place for five years – this means that in that five-year pe­riod, you will not be able to qual­ify for any credit, in­clud­ing a home loan. THE COSTS OF BUY­ING A HOME When you buy a home, there are sev­eral costs you have to pay.

In most cases, to qual­ify for a home loan you will have to put down a de­posit of be­tween five and 20 per­cent, de­pend­ing on the value of the home, the credit risk you pose and which bank you use. If you are buy­ing va­cant land, this de­posit re­quire­ment can go as high as 40 per­cent of the pur­chase price.

You also have to pay to have the prop­erty trans­ferred into your name and to have your bond reg­is­tered with the bank.

The bond regis­tra­tion and trans­fer process is han­dled by spe­cial­ist prop­erty lawyers called con­veyancers.

In most cases, the seller ap­points the at­tor­ney who will trans­fer the prop­erty into your name. The bank that grants you a home loan will ap­point the con­veyancer who will reg­is­ter your bond. You, the buyer, pay the costs of the trans­fer and bond regis­tra­tion.

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