Applying for a home loan

So you have reached a point in your life where you’ve started looking at the option of buying property. But before you plan too far ahead, you may need to focus on the first part of this process – applying for a home loan. We spoke to Roger Mortimer, Head of Risk Management at Absa Home Loans, and asked him all of the questions that’ll help you sufficiently prepare for your home loan application.

How to know if you’re eligible for a home loan
First things first. You need to take a good look at your finances and determine what loan amount you’ll be able to afford. “Work out a detailed budget around your monthly earnings and expenses. This is the only way to ensure that you’re not targeting a property that’s out of your league.” You can use the Absa bond calculator to get an estimated indication of your affordability. After that, you should also ensure that you are not listed at one of the credit bureaus.

What must I know before I apply for a home loan?
According to Mortimer, there are two main things that the bank would typically look at when reviewing new home loan applications:

1. The customer’s ability to afford the specific home loan instalment on a monthly basis.
2. The customer’s history of credit repayment.

After these aspects have been reviewed, the bank will also look at the nature and value of the property you’re looking to buy. Mortimer explains that there’s a massive difference between buying an already existing house and buying a vacant piece of land with the aim of building your own house. “From the Bank’s point of view, it’s much easier to take security on an asset that’s already there, than to take the risk of financing something that doesn’t exist yet.”

Mortimer says it’s just as important to ensure that you have the necessary documents ready before you go to the bank:

• The offer to purchase
• Your FICA documents
• Your original barcoded ID book
• Recent proof of residence
• 3 months’ payslips and/or bank statements
• Marital certificate (if you’re planning on buying property together)

With any home loan, there will also be transfer and bond registration costs (5 – 10% of the property purchase price) to cover, so be sure to get a transfer and bond cost form from any registration attorney, the Law Society or on online sites such as GhostDigest.

Which option would be best for me?

With Absa, you have quite a few options to choose from when structuring your home loan. Mortimer advises that you let factors such as affordability, availability of the cash deposit and loan term guide you in choosing which option would best suit your unique financial situation. Your options include Family Springboard, which allows a friend or family member to assist you in substituting the cash deposit with an Absa Fixed deposit in their name, or depending on your joint household income, you may qualify for the MyHome product.

If these options don’t appeal to you, you can always opt for the Ordinary Absa Home Loan, which offers you great flexibility and convenience. Or you could consider Future Bond, which allows you to register a higher bond amount upfront for use when your property has escalated in value and you want to take up a Further Advance.

Lastly, a quick word of advice specifically for self-employed people – be prepared to jump through more hoops. Small business owners often can’t qualify for a mortgage. The simple reason for this is that most self-employed professionals write off their expenses to their taxes to make their adjusted gross income much lower than their actual income. Banks will consider that lower number as your income and this will negatively impact your home loan application.

“A home loan is a huge commitment. People are borrowing an average of R1 million each on these loans, so I would highly advise that people check and re-check their finances to make sure they’re really ready for this big step.”

Here’s a video that you can watch, should you require any additional information: