Why a Home Loan Prequalification Matters
So you’ve been looking to buy your dream home, and you’ve seen something for sale that grabs your fancy. Now imagine yourself walking through the front door carrying a suitcase filled with cash. You’ll certainly get the buyer’s attention, won’t you? Of course, not many people are in the fortunate position of being able to pay cash for a property—but being prequalified for your home loan is the next best thing. What does it actually mean to be prequalified for a home loan, and does this process put you under any legal or financial obligations? The short answer is no. Unlike a promissory note—also known as a loan agreement—a prequalification doesn’t require any financial commitment on your part. However, this does not mean that you should set an unrealistic expectation of what your prequalification amount might be. Simply put, you wouldn’t walk into a store to purchase an item that you unequivocally could not afford. So why would you shop outside of your price range when buying a home? A prequalification is a clear indicator of what you can afford, and what your credit rating is. These two indicators are essential when purchasing a home. The bank will only approve you for an amount that you can afford to repay each month, and a bad credit rating (under 600) will not be accepted. According to recent statistics, 8.4% of home loan applications are declined due to poor credit scores, and 7.7% due to affordability. Do your homework Buying a home is an emotional and lengthy process. In addition to behind-the-scenes research and viewings, one needs to consider the process of putting in an Offer to Purchase, which—if accepted—is legally binding. This paperwork takes time, and requires input from the buyer, the seller, and the agent. Without a prequalification, there is a chance that the offer will be rejected—and that all the work would be done in vain. Also, keep in mind that if you have been rejected by the banks, you will need to wait three months before reapplying for a home loan. What a prequalification entails A prequalification can be easily undertaken online, and acts as an estimate of what you can afford as it is based on your monthly earnings, expenses, and any debts that you may have. The certificate is valid for 90 days. While this step won’t 100% guarantee that you will be approved by the banks, a prequalification is an easy way to determine the price category that you can shop around in. Conversely, if a prequalification is denied, it helps prospective homebuyers to be more realistic and to end the process before sinking any money or time into an application. Does a prequalification give you an edge? It certainly does, and the reasons as follows: Shopping with confidence: Knowing your credit score gives you the opportunity to address any issues before putting in an offer. A prequalification also gives you a pretty accurate picture of what you can actually afford. Standing out from the crowd: Sellers are more likely to accept an offer from someone who has a prequalification. This acts as proof that you can afford what you’re buying, and the likelihood that you will be approved by the banks. In a bidding war, a prequalification will help you to stand out. Avoiding disappointment: A prequalification protects you from putting in an offer on a property that you can’t afford, and will ten to one be turned down for. WRITTEN BY RHYS DYER Rhys Dyer is a real estate specialist. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Who Owns Your Home—the Bank, or You?
With the vast majority of homes being financed through the country’s biggest banks, the popular online debate around who owns a mortgaged home in South Africa continues. While some would argue that the bank owns your home, the truth lies in two salient points: The authority that you elect to take on as soon as the bond is transferred into your name; The all-important title deed. As a homeowner, the important decisions related to your home are dictated by you—not the bank. You have the power to decide whether you wish to renovate, extend, decorate, paint, update the landscaping, lease out the property, or even sell. You are also responsible for the maintenance, repairs and general upkeep of the property. If you were to sell, the first proceeds of the property sale would go towards paying off what you still owe on your home loan. Anything over and above would be profits for you to keep. Further to this, a crucial piece of evidence around homeownership hinges on the title deed. The name on the title deed of a home is the legally recognised owner, and this can be verified through the Deeds Office. If you were to access the title deed of the property, you would clearly see your name on it as the official owner. However, the bank’s name will also be listed on the title deed, not as the property owner, but as the holder of your mortgage bond. A homeowner will only receive their title deed once the home loan is paid off. The title deed will be kept by the lender or bank until the said home loan is paid off. With the majority of South Africa’s homes (69% according to Lightstone’s latest statistics) still being financed through the banks, the term ‘homeowner’ supports the argument. When you purchase a home—bonded or not—you are automatically deemed a homeowner. What is a title deed? A title deed is an important legal document used to determine the ownership of a property (or piece of land). When you purchase a property, a conveyancing attorney is appointed to transfer the title deed into your name, and you will need to cover the relevant fees related to the transfer. The transfer process usually takes about three months following the approval of the home loan. Once the bond registration and transfer process has completed, the title document will then be registered at the Deeds Office, which can take up to three weeks to be finalised. The title deed includes important information such as the homebuyers’ personal details, a description of the property, the property purchase price, the date when the property was last transferred, any factors that could restrict the sale of the property in future—for example, a home loan—and any restrictions that apply to the purchase of the property. It also includes an official Deeds Registry Office seal to indicate that the deed has been recorded in the name of the owner, and the date. In the case of joint property ownership, which is becoming increasingly commonplace, the title deed will also set out how much of the property is owned by each person. If I default on my repayments, is the house still mine? The common question of ‘who owns your home’ shines a spotlight on some South Africans’ misconceptions of homeownership. This misconception generally stems from the repossession process in which a bank can repossess and sell your asset, should you default on your home loan repayments. However, while this is factually true, the repossession process creates a legal and administrative headache for the banks and is therefore viewed as a last resort—meaning that they will often be willing to work with the homeowner to find a way to help them repay their debt over time. Homeowners in financial distress have access to the following avenues to avoid repossession: Rescheduling or restructuring your debt; Renegotiating your home loan term; Requesting a payment holiday; Rearranging your repayment agreement; Selling your home; Accessing credit insurance. Unbeknown to many, the local area municipality also has the right to foreclose and sell your home should you repeatedly default on rates and taxes, while the Body Corporate (in the case of sectional title properties) can opt to have the property attached and sold should you default on your levies over an extended period. While the recourse for repossession is lengthy and will follow due processes, it is important to note that the banks aren’t the only ones with the power to do so. Protect yourself by paying all fees—on time, every time—and prioritising your financial wellness as a homeowner. WRITTEN BY GAVIN LOMBERG Gavin Lomberg is a home financing specialist. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Factors to Consider Before Negotiating Your Home Loan’s Interest Rate
As interest rates continue to rise, many homeowners find themselves contemplating the idea of fixing their home loan interest rates. Initially, when the interest rate hike began after the historically low rates experienced in 2020, experts advised against fixing rates. However, the landscape has evolved since then, and the decision to fix your interest rate may no longer be a one-size-fits-all scenario. Instead, it’s crucial for every homeowner to carefully evaluate their unique circumstances and financial preferences before making this significant financial decision. Budgeting and peace of mind One of the primary considerations when contemplating whether to fix your interest rate is your budgeting and peace of mind. If having a stable and predictable monthly repayment amount is a top priority for you, then opting for a fixed interest rate can offer significant peace of mind. It eliminates the uncertainty associated with potential interest rate fluctuations, allowing you to budget effectively and plan your finances with confidence. Moreover, it can shield you from the stress that comes with worrying about unexpected increases in your monthly mortgage payments. Current interest rate environment: Additionally, the current interest rate environment plays a pivotal role in this decision-making process. If you’re contemplating fixing your interest rate, consider the prevailing interest rates at the time. If interest rates are relatively low when you make your decision, locking in a fixed interest rate can be a strategic move. It enables you to secure these favourable rates, safeguarding your financial stability from potential future rate hikes. Duration of your home loan However, it’s essential to bear in mind that the duration of your loan should also influence your decision. For instance, if you’re embarking on a long-term loan, spanning 20 or 30 years, opting for a fixed interest rate can offer financial stability over the extended term. Keep in mind that fixed-rate terms typically last for a set period, and you may need to renegotiate a new rate every five years, depending on your lender’s terms and market conditions. Flexibility and potential savings On the other hand, variable interest rates offer a different set of advantages. They provide flexibility and the potential for savings, especially if interest rates decrease in the future. Initially, variable rates can be lower than fixed rates, offering lower monthly payments that can free up your cash flow for other purposes. This flexibility can be particularly appealing if you anticipate changes in your financial situation or if you plan to make extra repayments towards your mortgage. It’s important to weigh these factors and consult with financial advisors or mortgage experts who can provide personalised advice based on your specific financial situation and market conditions. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Navigating the real estate market: Tips for buyers
Understanding the real estate market is crucial when buying or selling a property. The market’s current favour, whether for buyers or sellers, significantly impacts your decisions and strategies. Buyers’ market: When the real estate market leans towards buyers, it signifies that there’s an abundance of properties available for sale compared to the number of active buyers seeking to make a purchase. This scenario empowers buyers with more options and greater bargaining power. Consequently, properties may linger on the market for extended periods, and sellers may find themselves compelled to lower their asking prices to attract potential buyers. Sellers’ market: When the market is seller-oriented, the demand for properties outstrips the available supply. This heightened demand can trigger intense competition among buyers, potentially resulting in multiple offers and bidding wars. In such seller-driven conditions, properties tend to change hands swiftly, giving sellers the upper hand in setting higher prices and negotiating terms that favour their interests. Let’s explore some tips for making the most of the current buyers’ market: Timing is key: In a buyers’ market, you have the luxury of time. Homes tend to stay on the market longer, and sellers may be more motivated to negotiate. Take your time to research and explore properties. Carefully inspect homes, consider the neighbourhood, and evaluate their long-term potential. This patient approach can lead to better deals and investment opportunities. Bargain with confidence: In a market that favours buyers, you have more bargaining power. Don’t hesitate to negotiate on price and terms. Start with a reasonable offer based on market research. Sellers may be open to concessions, repairs, or even lowering the asking price. Be prepared to negotiate to secure a favourable deal. Get pre-approved for a mortgage: Being pre-approved for a mortgage gives you a significant advantage. It shows sellers that you are a serious buyer with financial backing. Before you start shopping, work with a lender to determine how much you can afford. A pre-approval letter can make your offers more appealing and streamline the buying process. While the current real estate landscape is leaning toward buyers, remember that local dynamics can vary. Staying informed about market trends in your area is essential for seizing the best opportunities. Armed with knowledge and these tips, you can confidently navigate the buyer’s market and make informed decisions. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes. Powered by SucceedGroup
Different types of home loans
In today’s economy, homebuyers often struggle to scrape together the money needed in order to buy their dream homes. Therefore, home loans have become so popular among prospective home buyers. New home loan providers noticed this and entered the mortgage lending market in order to satisfy this demand. Prospective home buyers are now spoiled for choice when it comes to choosing a provider to finance their property purchase. But that’s not all. Prospective home buyers can now choose the perfect home loan type that will be suitable for them specifically. There are several home loans available to prospective home buyers in South Africa. We will provide an overview of these types of home loans below: Fixed-rate home loan Fixed-rate home loans have a fixed interest rate for a certain period, which covers one or two years. The fixed rate will always be higher than the base home rate, but you will be protected against increasing rates. This loan helps you to avoid increased interest rates, however, if the interest rates drop, you will still be paying the same fixed rate. First-time buyers home loan First-time buyers home loans are very popular among first-time home buyers who want to invest in their first home but do not have the money at hand to put down on a deposit. Banks and other lenders are now open to lending more than 100% of the purchase price, which includes the registration and transfer costs. Variable home loan Variable home loans have their interest rate attached to the base home loan rate, which goes up and down, depending on the amount of the loan. If the home loan base rate goes down, the interest rate follows, however, it also works the other way round. Capped rate home loan Capped rate home loans provide you with the extra security of a variable interest rate without locking in a fixed rate. These home loans protect you against interest rate increases. However, it should be noted that qualifying for these types of home loans are quite difficult. Step-down home loans Step-down home loans are popular among homeowners who are close to retirement. With this type of loan, the rate offered to you by the bank is gradually lowered every year or 6 months. This saves you a lot of money. This home loan is very similar to switching home loans, as switching your home loans enables you to secure a significantly lower rate. Whichever home loan you choose, rest assured that there is a home loan out there for you that will enable you to make the biggest investment of your life; buying a home. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)