While South African banks are still eager to lend to homebuyers, they are also applying their lending criteria more strictly in light of rising inflation and rising interest rates, explains Berry Everitt, Managing Director of Chas Everitt International Real Estate Group.
To ensure their home loan application has the best chance of success, and possibly even qualifying them for an interest rate concession, buyers should avoid the following pitfalls, he said.
- Too much debt and too little income: Under the National Credit Act, lenders such as banks have a legal duty to ensure that the consumer will not become ‘over-indebted’ with any loan they may make. “In other words, if your current debt payments and other monthly obligations are already taking up most of your after-tax income, banks may consider it unlikely that you can comfortably afford the debt repayments. a new home loan and refuse you.”
- Not enough money in the bank: “Lenders are increasingly reluctant to provide loans for 100% of the purchase price of the property, so you should aim to have enough cash to pay a down payment of at least 10% – either in savings, or capital from the sale of an existing property. Lenders will also want to see, he says, that you have enough cash to cover transaction costs, such as transfer taxes, legal fees and bond registration fees.
- Poor debt repayment record: You may never have defaulted on a loan or even missed a car payment, but if you usually pay your bills late, it will show up on your credit report and make you look like a bad risk. This applies to credit card and store card installments, car reimbursements, your rent, and even your cell phone bill, so you need to be diligent about paying on time, for at least two years before you apply for a home loan. “And of course, if you have debt judgments against you, you’ll need to resolve those before applying for a home loan as well.”
- Other people’s problems: Sometimes borrowers can be turned down for things they didn’t do themselves. For example, says Everitt, if you vouch for someone and they don’t pay their debts, that will also negatively affect your credit report. Likewise, if you have a good credit history, but your partner or co-applicant does not, your application may be denied.
- Unstable work history: “Lenders like to see evidence of job and income stability, preferably for at least two to three years before applying for a home loan – and if you are self-employed you will need to keep meticulous records of your income , expenses, assets and liabilities.
- Not enough value in the property: Before a bank approves your home loan application, they will send an appraiser to assess the value of the property that will provide security for your loan. “And if the value doesn’t match the price you offered or the loan you requested, the application will most likely be rejected or you’ll have to pay a larger deposit.”
- Previous refusals: When a credit application is denied, that fact is also reflected on your credit history, and other lenders will then be reluctant to approve it unless you make some changes first – like paying off more debt. or create a payment history of your accounts. on time and in full each month.
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