How to Get a Home Loan

The majority of buyers need to obtain financing to purchase a property and that generally means applying for a home loan at one of the national banks. This process involves a lot of paperwork and background checks but there are a couple of things applicants can do to increase the chances of their home loan being approved.

Traditionally a mortgage repayment of 30% of net household income was accepted as an industry standard. However since the National Credit Act (NCA) came into effect in 2007 it has required more stringent criteria from providers when assessing affordability. According to the ABSA Homeowner Insights Affordability Report the biggest challenge with the affordability assessments lies not with the credit provider but with “the customer’s interpretation and understanding of their own personal financial situation”.

Understanding your financial situation

“People often overestimate their own income; for example using their bonus months as the measure to justify their affordability. Naturally they could then have difficulties in terms of paying their mortgages in leaner months”, explains Bruce Swain, MD of Leapfrog Property Group. 

Record your expenses properly

When it comes to budgeting for a home loan it’s critical to factor in expenses like cell phone contracts and gym memberships. “Most banks make use of credit bureau information (going back as far as six months) to ensure that they are aware of all of an applicant’s expenses so trying to hide these won’t help and, although these costs could seem insignificant they could turn the balance from a positive application to a negative one,” says Swain.

Disclose all financial commitments

The ABSA report indicates that some applicants purposefully fail to disclose all of their financial commitments in the hopes of getting a higher home loan. Swain explains that this won’t work as “the banks often identify and deny these applications quite quickly but, even if the application is approved the home buyer will likely run into financial difficulties and, because of their omissions probably won’t get protection under the NCA”.

Factor in a buffer  

Home loan applicants need to know that banks will often factor a small buffer into their assessments in order to protect against interest rate increases as well as changes to the municipal rates for example. “Sometimes buyer’s applications are rejected or they’re given a smaller home loan because their finances can’t cover a buffer. What they need to realise is that this buffer could be critical to their financial well being and that they may need to look at a less expensive property in order to maintain it” believes Bruce.

With the interest rates that have just gone up and are likely to continue to increase in the short term Swain’s advice to buyers is to do their homework, budget carefully and to get pre-approval for a home loan; “getting pre-approved will already give buyers a good indication of what they’ll be able to afford in terms of monthly repayments as well as saving time when it comes to applying for a home loan.  Another good tip is to make use of a home loan originator who can approach a number of banks and negotiate the best deal based on the client’s needs and circumstances – much simpler that trying to go through the process alone”.