Remember to have all your "ducks in a row" when applying for a home loan

Banks, since the implementation of the National Credit Act in 2007, have used an electronic scoring system to assess those applying for finance. It relies on “checks and balances” and there is no room for the personal opinion of a person vouching for the applicant to override the system.

It is said that only one in four bond applicants are successful in their applications, and potential property buyers do need to have at least 10 to 20% of the purchase price as a deposit as banks do not often grant 100% bonds anymore, says Giles Buswell, partner at Henwoods Attorneys and Conveyancers and one of the founding members of the Attorney Realtor Hub – ARH.

When applying for a home loan, it isn’t just the buyer’s ability to afford the property he wants to purchase, it is his credit profile as a whole that will be checked, i.e. his spending and past payment behavioural patterns.

This is done via a credit report score that shows how the buyer compares with other consumers. The credit score is a point system that uses factors such as how well the applicant pays their bills each month, whether they pay in full and on time, how much debt they have and how many times they have applied for some form of credit. This will ascertain whether the buyer is a suitable candidate for a long-term loan, or not.

The higher the score, the better, and they are usually given feedback as being fair, good or very good, up to excellent.

Many potential property buyers will possibly be asked if they have pre-qualified for a home loan, and this is easily done through a quick, paperless online facility that ARH uses, called My Bond Fitness.

There is an additional service, My Budget Fitness, which coaches those who might not be 100% fit to apply for a loan at the time of checking, in guiding them through the necessary steps in order to become credit “fit”.

When an application is to be submitted to the banks, they will also need three months’ proof of income, proof of current address, and identity documents, but if self-employed they will need six months’ worth of bank statements or financial records to assess what the applicant’s income and expense patterns are.

Banks tend to go as far as two years back into the applicant’s credit rating and any unpaid items will necessitate a six month period to “rehabilitate” the rating. Each time an account is paid late or not in full, this affects the credit score negatively and a record is kept of this, which shows how important it is to pay all bills in full and on time, says Buswell.

If the applicant has no credit record, where the potential buyer has thought to keep his record clean and pay for all he has in cash, he will have to build a credit profile before the banks will consider his application. This sounds like it’s contradictory to good financial planning, but it only takes one or two small retail or credit card accounts to be opened, paid on time and in full each month for six months to show that the applicant is consistent with the upkeep of his financial commitments.

“It is better to check your own credit rating (and have that 100% in order), and have a prequalification certificate before looking to buy, as this clears the way to an easier application and approval process,” advised Buswell.

If your home loan is not successful, because of a lower credit score or the lack of a 10 or 20 % deposit, all is not lost, says attorney Meyer de Waal, one of the co-founders of ARH.

Since the launch the concept of “Rent2buy Finance”, an Attorney Realtor lawyer is able to assist a home buyer to secure his or her dream property through the Rent2buy Finance product. This opportunity is available for properties located in Gauteng and in the Cape Peninsula in the R400 000 to R1,8 million price range.

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