BUYING A HOME?
Category Advice
Top tips to ensure a positive and successful home buying journey by ooba Homeloans
Buying a home is a big deal and prospective home buyers should make sure that they have all the information available to navigate through the process with ease and to give themselves the best possible opportunity to secure the required finance when purchasing a home.
Get Prequalified!
The first and most important step for any prospective home buyer, whether they are first time home buyers or not, is to get properly pre-qualified by a home loans comparison service like ooba Homeloans.
This prequalification can be as easy as a 3 step self-assessment available online, to obtain an indication of what their credit bureau result looks like and what loan amount they are likely to qualify for. It is a simple online process available through the ooba bond indicator tool which the buyer can access by obtaining the link from the ooba consultant or the Wakefields Estate agent.
Know your Credit Score!
The credit bureau score is very important and all prospective buyers must ensure that they conduct their contractual credit arrangements well so to gain a good credit bureau result. Banks place a lot of emphasis on the client's risk and credit profile when assessing home finance applications. Debt must be paid on time and at the required amount, skipping a payment here and there, short paying or allowing accounts to run into arrears will have a negative impact on the client's risk profile and may lead to unsuccessful home finance outcomes.
Power of a Qualified Buyer Certificate!
As part of the pre-qualification process, clients can also get in touch with a home finance specialist to assist with a proper pre assessment. This process follows the same route as a real homeloan application and provides opportunity for the prospective home buyer to ask all the questions that they may have whilst being guided by the consultant about the home buying process and costs involved to purchase a home, without the stress of a deadline.
The ooba Qualified Buyer Certificate is issued after the consultant conducted a full interview and collected supporting documentation to vet information for a more accurate prequalification outcome. This Certificate becomes a powerful tool when a buyer wants to make an offer on a property as it carries a very high success rate according to ooba Homeloans 93% of issued certificates result in a bond approval once a purchase has been made. Property agents are able to use this as an advantage when negotiating a purchase price and agree on terms with sellers on the buyer's behalf.
During the prequalification process as mentioned above, the ooba consultant will advise the buyer of all other costs and expenses that form part of the home buying process, such as:
Property Transfer and Registration costs, Potential Mortgage Protection costs and Buildings insurance costs where applicable.
It is also important for home buyers to know when the various costs are payable as the transferring attorneys will call for payment of costs before the bond is registered and unless costs are included in the home loan transaction, this often comes as a surprise to the buyer.
What If you don't have a deposit or costs?
First time home buyers who may not have a deposit or the transfer and bond registration costs upfront, can make application for a full bond at 100% of the purchase price and an additional amount up to a specified % of the purchase price, to cover the Bond Transfer and Registration costs. These loans are known as cost inclusive loans and are generally limited to a total loan amount of R1 800 000. 00 depending on the individual bank product features and parameters and of course the client's own affordability.
The Homeloan application process!
The application process starts from the very first conversation between a home finance specialist and a prospective property buyer. Once the prequalification is complete the buyers start looking for suitable properties by selecting a property sales agent to assist. It is recommended that buyers seek out the specialist services of professional property agents in the areas where they want to purchase as these agents have expert knowledge of their areas and will handle all the communication and negotiations with sellers on behalf of the buyer at no cost as their commission is paid by the seller.
Once a sale agreement or offer to purchase has been accepted by the seller the bond application can be submitted to the various banks for assessment. As a bond services provider the ooba Homeloans consultants are expert in the bank qualifying criteria and will submit to multiple banks at the same time in order to achieve the very best result for the buyer. Through this process buyers are assured competitive interest rates as banks are all looking to gain the client's business and compete with each other to bank the transaction.
After the banks have provided their offers or approvals, the buyer can make an informed decision which option will suite them the best. Many banks are offering additional interest rate concessions for non-banked clients should they move their account over, this is known as a cross sell benefit.
It is important that the property finance consultant explain all the terms and conditions of each bank final quotation to the buyer so that all aspects of the offer and all obligations by the buyer are clear and understood before the buyer accepts one of the quotations.
Upon acceptance of a bank quotation (final approval) the property finance consultant will advise the bank of the successful acceptance and the bank will then instruct the attorneys to proceed with the legal process that follows. This process is referred to as the conveyancing cycle and ensures that the property is transferred from the seller to the new owner and the homeloan is registered at the deeds office on the same day. This process can take between 6 to 12 weeks and sometimes due to specific circumstances it may take even longer.
It is at acceptance of the final bank quotation stage that the buyer is advised to request a pro-forma invoice from the transferring and bond registration attorneys to understand the actual costs that will be applicable and payable by them in this regard. Buyers need to understand that there are two different attorneys involved in the transaction and sometimes there is a third attorney known as the cancellation attorney who will cancel the sellers homeloan so it can be transferred to the new owner and bond holder. The cancellation attorney does not have a cost implication for the new buyer.
Self-employed or Salaried buyers!
Approximately 15% of ooba Homeloans applicants nationally are self-employed and these applicants will need to be made aware of the documentation required by banks to assess their affordability and be sure to have their paperwork in order before they purchase a property.
These documents will include their Business Financial Statements for the past two trading years, management accounts if required, an auditors letter of earnings and copies of the business bank statements. The top tip here is for business owners to ensure that the income they declare is sufficient for the amount they will require to qualify for. Their monthly earnings must be evident when their paperwork is assessed by the banks.
Best is to ensure that personal drawings are paid by the business to the buyer's personal bank account for a number of months before they embark on buying a home. The amount reflected on the financial papers will then be easily confirmed by the income credits to the buyer's personal bank account. If other expenses are covered by the business on behalf of the buyer like car payments or insurances, then the auditor must specify these amounts in the letter of earnings as well.
Salaried buyers have less paperwork requirements but if they are commission earners or earn fluctuating income or rental / investment income there will be a few more documents needed besides their Salary Slip, ID and personal bank statements.
How does affordability assessment work?
When the banks assess affordability they look at net surplus income according to the specifications set out in the National Credit Act. Net Surplus income is the amount left after income deductions, credit repayments and living expenses have been deducted from the buyer's gross earnings. This amount must be equal or more than the expected monthly bond repayment.
The banks also use a repayment to income ratio to assess affordability where they consider 30% of total gross monthly earnings to be the maximum repayment amount allowed. In some instances, the banks will approve repayment beyond this ceiling depending on the strength of the applicant in terms of their personal risk profile and the bank's appetite to secure the transaction and the client.
To illustrate these affordability measures let's look at an example:
If the purchase price of a house is R750 000 and buyer requires a 100% loan but has funds to pay the transfer and registration cost the following calculations will apply:
Bond required R750 000
Loan repayment period 240 months (20 years)
Interest rate calculated at Prime lending rate currently 11.75%
Monthly bond repayment will be R8 127.80
The buyer will need to produce total gross earnings (all applicants combined) of approx.
R27 200 per month to qualify using the 30% repayment to income calculation.
However, if the total earnings of the applicant amounts to R28 000 per month which is sufficient to cover the Repayment to income requirement, but after deductions, debt repayments and living expenses the client now only has R7000 net surplus income left, it will be insufficient to qualify for the loan and may result in a lower finance offer from the bank or even a decline due to the requirements as set out in the National Credit Act.
Top Tip in the home buying journey!
The best tip for prospective homebuyers in order to give themselves the best possible advantage when it comes to buying a home is to work with a reputable estate agent and an experienced property finance specialist from the outset. Both such professional resources come at no cost to the buyer as the estate agent receives a commission payable by the seller of the property and the property finance consultants gets paid a commission by the bank when the buyer's bond is registered. This will ensure that two professional experts provide property buyers with solid guidance and trusted decision making information throughout the journey to achieve successful results leading to happy home ownership.
Author: Linda Rall | ooba homeloans
