How to obtain a home loan: Things to consider before you apply
With most of the major interest rate hikes now out of the way, 2023 is set to provide a more stable environment for financially savvy, would-be home-buyers to enter the property market. While the economic outlook is set to be less turbulent than during the previous year, it’s still vitally important to take charge of your spending and prioritise assets that will pay off in the long run. While some South Africans are opting to rent, ooba’s statistics indicate that there is still strong demand for home-buying among both first- and second-time buyers due to the competitive lending environment. Where to start Before starting the process of shopping around and applying for a home loan, potential homebuyers should have a clear understanding of what they can realistically afford. A good rule of thumb is that a monthly home loan repayment should not exceed 30% of your monthly salary. There are free tools online such as ooba’s Bond Indicator, that allow you to check your credit score, see what you can afford, and provides you with a prequalification certificate which is valid for 90 days. More than just a piece of paper, a pre-qualification certificate plays a vital role in boosting your chances of receiving preferential interest rates, as it ‘primes your financial profile’ prior to applying. Once this step is completed, it’s time to talk about budgeting and saving. It’s important that you budget accordingly, preparing yourself for the added costs associated with homeownership, including: the cost of registering your bond; transferring the property into your name; and paying the transfer duty on your new home (applicable to properties over R1 million). Also, while banks continue to approve 100% home loans, buyer demand for zero-deposit loans has dropped by 7% from Q4 ’21 to 57% of applications in Q4 ’22. We, therefore, recommend that buyers factor in a deposit of around 10%. For first-time South African homebuyers earning a single or joint gross monthly household income of between R3 501 and R22 000, there is also a good chance that you can qualify for the Finance Linked Individual Subsidy Programme (FLISP). Don’t forget the paperwork In addition to the general criteria that to apply for a home loan, homebuyers must be 18 years or older, permanently employed for at least six consecutive months, or self-employed for the past two years, the following five documents are required to complete your application and give you the greatest chance of successful approval: Proof of income: The majority of the banks will ask for your last three pay slips from your employer (or accountant if you are self-employed) as proof of regular income. Bank statements: Banks will request the last three months’ bank statements from your personal account. These will be used to verify your monthly income and expenditure, which includes monthly debt repayments and living expenses. If you are married in community of property or are applying for a joint home loan, your partner’s bank statements will also be required. A copy of your ID: Make sure that you have a copy of your South African identity document scanned and ready to go. Personal assets: The loaning banks will request a bird’s eye view of your personal assets and liabilities through your bank statement. The purchase agreement:The banks will need to see a copy of the purchase agreement on the home that you are wishing to purchase. Remember that a bank valuator is sent around to the property to make sure that it is valued correctly. A lot of these take place electronically these days; however, it remains a key requirement for final bond approval. Help is at hand The process of applying for a home loan especially the first time around can be daunting. A free home loan comparison service offers you tools to check your credit score and determine your affordability, helps you get your documents in order, and submits your home loan application to multiple banks so that you receive the best possible interest rate. WRITTEN BY Rhys Dyer Rhys Dyer is the chief executive officer of ooba Home Loans. 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)
How much home can you get for your money
Analysing the affordability of SA’s residential property market. South Africans continue to tighten their belts as the pressure of rising interest rates, inflation, and other varying economic factors put household income under strain. This puts the affordability of national residential property under the spotlight. However, while (in nominal terms) national house price inflation remains positive (+1.9% in September 2022), the national average purchase price is down among first-time homebuyers. The price of properties purchased by this demographic registered a third consecutive decline in September 2022 (down 3.5%), reflecting first-time homebuyers’ sensitivity to interest rate increases. Breakdown of the most and least affordable regions in SA Regional house price inflation for the year to 30 September 2022 is broken down as follows: Gauteng South and East: +7.3% Eastern Cape: +5.7% Gauteng North and West: +1.8% KwaZulu Natal: +1.4% Western Cape: -2.1% Interestingly, properties in Gauteng’s South and East Rand continue to register robust growth in prices, despite this region’s average house purchase price being the lowest at R1 183 032. The Western Cape, on the other hand, has the highest average purchase price in the country, but it is the only major region to report house price deflation. After peaking in March 2022 at R2.05 million, the average purchase price of properties purchased in the Western Cape eased to R1.66 million in September with purchase prices over the year to 30 September 2022 registering a decline of 2.1% compared to the same period last year. In Gauteng North and West, the average purchase price of properties purchased this year (to 30 September 2022) is pinned at R1 551 273, while in the Eastern Cape and KwaZulu Natal it sits at R1 490 898 and R1 337 229 respectively. Analysing the price-to-income ratio in SA Examining property prices in isolation reveals only one side of the story, because the price of a home is not the same as the relative affordability of a home. One way to measure the affordability of homes is to look at the price-to-income ratio. Here, the nominal house price is divided by the nominal disposable income per head. This means that in a particular region, homes may be more expensive, but incomes may also be higher thus making the homes there more affordable. In the Western Cape, for instance, the average purchase price of properties purchased from January to September 2022, compared to the same period in 2019, shows an increase of 6.1%. The average gross income of applicants has, however, increased by 17.5% over the same time period suggesting that on average, the homes purchased this year are almost 10% more affordable than those purchased during the same period in 2019. Affordability has also improved marginally in the Gauteng North and West region, as the average income of home loan applicants increases at a slightly faster pace than that of the average purchase price. However, the same cannot be said for homes in the Eastern Cape (where house prices of homes purchased increased by 18.5% during the year to 30 September 2022, compared to the same period in 2019) and, particularly, in Gauteng South and East Rand (tracking a house price increase of 21.7%). In both these regions, this rise in house prices purchased has outpaced growth in average gross incomes, resulting in a relative deterioration in affordability in these housing markets. Affordability amongst first-time homebuyers per region Gauteng is home to the largest percentage (20.3%) of potential first-time homebuyers (mostly young adults aged between 30 and 39 years), while the Eastern Cape has the lowest. Across the regions, but most notably in the coastal provinces, the average first-time homebuyer’s purchase price has decreased. Interestingly, Gauteng South and East where first-time buyers make up more than half of applications received registered the lowest average purchase price year to date. This makes it the second most affordable region for homebuyers, despite a slight deterioration in affordability. Conclusion and outlook Overall, despite varying levels of affordability across the country, the market remains stable and there are still deals to be had for those who want to capitalise on a generous lending environment and shop around using a home loan comparison service. As interest rates begin to stabilise in 2023, we expect to see activity in the market improve, especially among first-time homebuyers. WRITTEN BY RHYS DYER Rhys Dyer is the chief executive officer of ooba Group. 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)
Take your homeowner relationship to the next level
Despite the recent interest rate increase, South Africa is still currently in what is deemed a “buyer’s market”, where first-time homebuyers are enjoying the opportunity of entering the property market at a much earlier stage than their financial situations would have allowed in previous years. But it’s precisely the fact that so many homebuyers are entering high-stakes financial decision-making for the first time that requires a crash course in basic questions that will help you make the most of the opportunity. Because just like falling in love, buying your first property can easily leave you seeing the world through rose-coloured glasses. So, before you take things to the next level with your dream home, take a second (or few good hard moments, hours, days – however long it takes you) to ask yourself the following questions. 1.Is it young love or have you found the real thing? Aaaah, falling in love. We all remember those first few weeks of utter hormonal bliss and being absolutely mesmerised by our high school crushes, don’t we? Well, it’s the same with a property. Falling in love is easy. That first tour through the property often makes everything look perfect, as if you stepped into the home you’ve been daydreaming of. But just wait till the second tour. That’s where you pick up on the irritating character traits and shortcomings you somehow missed while in your infatuated state. This is where you find out if it’s true love. So, take that second tour of the property, and see if it wouldn’t be better for you to continue seeing other people. 2.Are you (and your income) ready to take things to the next level? Going on a few dates, buying flowers and gifts here and there – dating usually isn’t a great financial burden. Once another person becomes a constant factor in your budget, however, the effect isn’t quite as inconsequential. So, get out your calculator and start number crunching. Owning a property comes with more costs than bond repayments. Agent fees, legal fees, transfer fees, monthly rates and taxes, general upkeep and maintenance — these are just a few of the major costs you need to keep in mind, on top of your monthly bond repayment, when finding room in your budget for homeownership. This step may very well require you to call in the cavalry and get professional advice on the additional costs and whether your current financial situation can accommodate them. 3.What are you looking for in the perfect home? Being on the dating market is the most terrible place to be, especially when you’re wondering whether every person you meet is “the one”. When your only criteria in the property market is simply for the home to be on the market, finding the perfect match is going to be a nightmare. The only way to find your one true home, is to look for the specific characteristics. It’s important to go beyond “two bedrooms with a yard”. Do the rooms get sunlight for your painting hobby? Is there enough space for that second bookshelf or your yoga corner? Is there enough shade for summer picnics? Will your vegetable garden get enough sunlight and shade? It’s important to remember that buying a home is a long-term relationship, and the property has to accommodate your life. 4.Why have you, my dear abandoned home, been on the market so, so long? There is nothing wrong with finding love later in life. However, when talking about a for-sale property, the question has to be asked: Why is no one interested? It’s not like it has been focusing on its career. Luckily, with a property that has been on the market for an extended period of time, you don’t have to rely on Facebook stalking to find the untold story. With the assistance of home inspection services, buyers can truly get to know the prospective property, inside and out, before the Offer to Purchase is drafted. This will allow you to decern whether the property has been on the market due to flaws and damages or whether the home has been waiting just for you. Where the seller is aware of any flaws, a disclosure form is attached to the Offer to Purchase, indicating the flaws and how they affect the value of the property. But even when a property is not sold voetstoots (as is, with all its defects detailed in the Offer to Purchase), it can still be difficult to be recompensed for damage claims once the sale is finalised and you’ve settled into your new home. So, do your due diligence and go over any prospective properties with a fine comb. 5.Going steady or still seeing other people? As with any relationship, you need to know if things are serious. When you’re head over heels about a property, it’s a good idea to find out if others have made offers before you. This will indicate to you how quickly you need to make your own offer. If you’re facing off with other interested buyers, you simply cannot delay in getting your Casanova going and making your own offer. However, if the property has been waiting just for you, you may have more room to negotiate the terms of sale. Now we aren’t relationship experts, but we are property experts. And we look forward to hearing from you and helping you take things to the next level in your real estate journey. 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)
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)