How to secure a home loan quicker

Most people do not have the means to buy a cash home and will need a home loan.

Trying to source a home loan can be a headache, given the number of products available through various banks and lenders. When applying for a home loan, the information required by lenders can be quite exhaustive. These include the applicant’s record of income, expenses, assets, and other cost commitments.

Various credit checks have to be completed and the waiting period to have a loan approved can take up to a few days. Now that the Reserve Bank’s interest rates are favourable, the housing market is experiencing a high demand for home loan applications. With many people competing to buy a home at any one time, the turnaround time for a bond application is crucial to buyers.

Research the market

Researching the best deal for a home loan should be a priority for any home buyer. Different home loan clients will have their own particular needs when it comes to applying for a loan. Those who have purchased a home in the past, probably have an easier task of securing a home loan, when they are buying a second property.

If the bond on the first home has been paid up or payments have been made responsibly, it will boost the applicant’s credit record and the loan should be easily secured.  

First-time home buyers must conduct thorough research of all the banks and lenders in the market. They must, once they have studied the product offerings of the various financial institutions, decide which one fits their needs. Once the lender or bank has been chosen, it is advisable to acquire a home loan consultant who will always be available throughout the home-buying process.  

Choose the best option

The more banks or lenders a home loan applicant can approach for product information, the better. It is advisable for the buyer to secure the lowest interest rate that can possibly be negotiated among all the lenders.

The interest rate determines what the client will pay over and above the bond amount of the home over the period owing – which could be up to 30 years. The SA Reserve Bank (SARB) controls the repo rate – which is the rate at which it lends money to the major banks. This is the prime lending rate.

How banks use the repo rate

The banks might for example offer a home loan at prime plus 4%. So, if the prime lending set by the SARB is 7%, the bank could add on 4%, (prime +4%) which will be their profit on the loan amount granted. If the repo rate should increase to 8% - then the bank’s lending rate will go up to 12% (8+4%).

Ooba.co.za says that “with the cost of funding for banks increasing, fewer home loans are being offered by banks at below the prime lending rate.”

It further states that “you’ll need an exceptionally high credit score and a solid deposit to earn a rate below prime. Therefore, it is important to know what the cost implications might be when in the market for a new home. This must be uppermost in the mind, during any negotiations with the bank.” 

Plan strategy in advance

The planning around a home loan is a crucial part of the process of any home loan application. It is advisable to do the necessary checks and balances months, or even years in advance, before applying for a home loan.

For example, if household spending is reined in, it increases disposable income that could assist in having the home loan approved without any major hiccups. Responsible spending and debt control patterns positively affect credit records. If this is maintained, the credit rating increases simultaneously, which in turn increases the buyer’s chances of securing a home loan.

Investopedia.com says that lenders prefer to see a debt-to-income ratio smaller than 36%, with no more than 28% of that debt going towards servicing a home loan. This kind of spending discipline, if consistent, can bring peace of mind that the owner can afford the home. If a married couple who have a dual income is buying a home, the chances of securing a bond increase. It could also assist in negotiating a lower interest rate with the bank, especially if a deposit can be made. 

Deposit a good start

Depending on the situation, banks generally require up to 20% deposit of a bond amount. However these days, first-time home-owners can qualify for a 100% bond. It is better to save up money for a deposit on the bond. This provides access to many home loan providers and increases the chances, if the other financial records are good, of acquiring a loan. These are the advantages of putting a deposit on any bond.

• Puts the client in a better position to negotiate a lower interest rate
• A small reduction in the interest rate can save the client thousands of Rands
• Depending on the size of the deposit, home-owners can have better access to home loans in the future, if there is a smaller balance to pay on the bond
• This can improve credit records and maintain them at a high level
• This increases the chances of getting bond approval

Find a qualified mortgage broker

A mortgage broker can simplify the sometimes complicated process of acquiring a home loan. There are a number of these brokers with suitably qualified personnel familiar with the Finance Act, who will negotiate the best rate for any applicant. In so doing, they take the pressure off prospective home loan clients having to do the research themselves.

Once the broker has consulted with the applicant, they will approach banks and lenders linked to their network to secure the best interest rate for clients. Securing a home loan can be an arduous process and a mortgage broker makes it a stress-free and less expensive exercise for applicants. A list of some of the brokers in South Africa:  

• Ooba
• SA Home Loans
• Bond Buddy
• Home Loans SA

Qualify despite bad credit

A mortgage broker or debt counsellor can help people who have been blacklisted for a poor credit record. The rule of thumb is to get hold of the credit record. Getting hold of this record does not guarantee a home loan, but will point out to the holder what debt needs to be cleared or paid up to improve the credit score.

These include judgements for bad debt or how many times credit has been applied for and which companies are owed money. Even just paying a debt anyone has been blacklisted for consistently or settling it, can improve a credit score.

Harcourts.co.za says there are still several lenders with slightly different criteria that will consider lending to someone with bad credit. It says while borrowers with bad credit may require a larger deposit and will likely be charged a higher interest rate, in many cases once they can show they have made payments on time for a certain period, there may be an option to refinance at a lower interest rate.

A home loan is one of the biggest and most important decisions anyone can ever make for their or their family’s future. There are many options available to access these types of loans but a careful and well-thought-out strategy is required before deciding to apply for one.