Get a home loan prequalification before buying

22 Sep 2017

Once you have decided to buy a home, it may seem obvious that the next thing you need to do is to contact a reputable estate agent and to register on websites to receive property alerts in your price range - but there is something else you need to do before this.

Charles Vining, Seeff’s MD in Sandton, says that doing a bond prequalification prior to embarking on your home buying journey has never been more important, especially in uncertain financial times like these.

“Doing a bond prequalification is a good way to assess your current financial situation, because you are forced to look closely at income and expenditure as well as your credit record,” he says.

“Once you have determined your financial situation, you can identify unnecessary expenses like forgotten debit orders for subscriptions or contracts you no longer use, you can reconsider your insurance for a better deal and also look at consolidating debt if necessary.”

Vining continues that the banks have a duty to lend responsibly and a prequalification would determine what property price bracket is most appropriate for your budget based on monthly home loan repayments.

“Prequalification will also assist in identifying the cash you need on hand for a property purchase like a deposit amount, transfer duty and transfer costs,” he says.

Vining says another important reason why they advise all prospective buyers to undergo prequalification is to avoid disappointment.

“When buyers look at properties above their price range because they think they’ll qualify for a higher bond, it is hugely dispiriting when they find out they can’t afford it. They may have been shopping for property between R1.5 million and R2 million, only to find out they will obtain a maximum bond of R1.2 million after putting in an offer,” he says.

“This does not only mean they now have to restart their search for property in a new price range, but often these homes will now seem disappointing in comparison to those viewed in the higher price bracket.”

Vining adds that a prequalification assessment should be conducted by a professional, prior to viewing any properties. This can be done using the various apps and online offerings of bond originators, or the banks themselves.

Alternatively, a meeting can be booked with a banker or bond originator, and the expert will interview you and conduct a full income and expenditure assessment after which a credit bureau enquiry will be conducted to ascertain your credit risk profile.

It is important to note that a bond prequalification relates to a buyer’s affordability. The bank would still do a valuation on the actual property the buyer intends to purchase, and the loan-to-value (LTV) policy of the banks could affect the amount that they are willing to lend against the property, regardless of the prequalification of the buyer.

“The bank will not always lend against 100% of the value of a property, and although 100% bonds do happen, bonds are most often granted between 85% and 95% of the value of the property,” says Vining.

Vining says a prequalification is beneficial regardless of the outcome - credit-related impairments will either be uncovered early on in the process, or a certificate giving you the go-ahead will be issued if you have a positive net surplus income and a clear credit check.

“Should your financial situation improve once you’ve bought a property, surplus payments into the bond account are always a smart way to save on the interest,” he says.

Check your home loan affordability.