Understanding the bond application process

Cameron Jansen, Broker Manager of RE/MAX Central, discusses what happens during the home loan application process.
Broker Manager of RE/MAX Central, Cameron Jansen says that currently in South Africa around four out of every five people who want to purchase a property will require a financial institution to provide the necessary finance for the transaction.

“Essentially what this means is that the majority of property transactions in this country are financed in one way or another. Most buyers and sellers would like to have the finance sorted out and the transaction to go through as quickly as possible. In order to expedite the process, it is important for buyers to be prepared and have all their documentation in order before they submit a bond application for approval,” says Jansen.

He notes that before a buyer applies for a bond they should first pull their own credit report to see whether any adverse information has been loaded that could impact their chances of bond approval. “It is important to know what your credit report says before even going through the process of even finding a home, never mind the bond application process.  While most people think they are excellent payers and have a clean credit record, it is always worthwhile having a look to make doubly sure. Things that buyers may not have thought about is those secondary or even tertiary credit card accounts where they might be slightly in arrears and may need to catch up on their payments. Even if the buyer isn’t using those accounts they could still be noted as a late payer, which would impact their bond approval aspirations,” Jansen explains.

He adds that ideally, buyers should get rid of any credit lines that they no longer use or need, as they will have a negative impact on their affordability ratios. “It is best to have as little debt as possible to ensure that there is sufficient disposable income to cover the necessary affordability ratios required by the banks. If an individual has two credit cards each with a limit of R50 000, the bank will look at those accounts collectively as a potential R100 000 debt, regardless if the money has been spent or not. Therefore, it is best to get rid of at least one and if possible reduce the limit on the other,” says Jansen.

When buyers apply for a bond they will be asked to provide a breakdown of their monthly expenses. Jansen says that very few people are fully aware of the exact amount they are spending each month, so they should draw statements from their chequing account and credit card account and use those to get a comprehensive picture of how much they spend. “In the case where it is a couple who are buying the home together, each party should look at their expenses and collectively draw up a household income and expenditure list to provide a clearer image of where they stand financially,” advises Jansen.

He adds that to make the process far easier and faster for everyone involved, it is advisable for the buyer to approach a bank or bond originator to get pre-approval before they start their home search expedition. This will provide the buyer with a price bracket they can afford, making it easier to narrow down their home search and avoid the disappointment of finding a home they want which is outside of their price range.

Jansen says that what a lot of buyers don’t realise is that banks will provide them with a different interest rate based on where they are buying. He notes that if the buyer is purchasing a home in an up-and-coming area, they will get a better rate than if they purchase a home in an area in decline. The area will also have a bearing on the deposit percentage that the bank requires the buyer to put down. 

According to Jansen, the bank can withdraw their approval at any time during the property sales process, so buyers should not take on any further debt or make big-ticket purchases until the home has been transferred into their name. “Often buyers get caught up in the excitement of purchasing a new home and decide to purchase a new car or furniture as well. If this requires finance, the bank that originally approved the bond could then decide that the buyer is no longer in a position to financially cover their bond agreement and rescind approval, resulting in the buyer losing the property. It is best to keep everything as it is until after the home is in the buyer’s name,” he concludes.

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