select
|

Bonds 101: Everything the first-time buyer needs to know

When you are thinking about buying your first property, the subject of bonds comes up, but what does that entail? What should you consider when applying for a mortgage?

What can I afford?

Mortgage originator ooba points out that, naturally, the very first thing a first-time buyer needs to consider is what they can afford. There are plenty of online calculators to help you work out how much you can afford to spend on bond repayments every month. Also, take into account what is known as the loan-to-value ratio. It will affect the size of the bond a lender is willing to give you.

It's a figure calculated by comparing the value of the property you want to purchase with the size of the loan you're applying for. You calculate this by dividing the amount of the mortgage by the value of the property and then multiplying that number by 100.

Are there any other costs I should be aware of?

Yes. Besides the monthly bond repayments you will need to make once you have been granted a bond, you will also need to pay a bond initiation fee and administration fees. Other costs the new homeowner needs to consider are transfer costs, removal costs, insurance and utility bills and rates and taxes. Many people are unaware that transfer payments fall under two entities. Transfer costs are the legal costs you need to pay when buying a home and transfer duty is a form of tax payable to SARS before transfer documents are lodged in the deeds office. "A good estate agent," says Liz Makelberge, co-owner of Lew Geffen Sotheby's International Realty Blouberg and surrounds, "will help you work out these costs so that you have a realistic picture of the actual costs of buying your first home before you apply for a bond."

What do I need to qualify for a bond?

This varies from lender to lender. Most importantly, however, says Makelberge, you need to make sure you have a good credit rating. South Africans are entitled to one free credit check a year. This will let you know if you have any judgements against your name so that, if you do, you can start planning to amend them before applying for your bond. It pays to start improving your credit before applying for a mortgage, too, as a good credit record is the only way you can assure the bank that you pay credit in full and on time.

Depending on the economic climate, even first-time buyers may not be guaranteed a 100% bond. Either way, a deposit gives a lending institution faith in your financial situation and also lowers the amount of interest you will need to pay on the amount once it is approved.

What is pre-qualification?

Before putting in an offer to purchase you need to get yourself pre-qualified for a bond. "An offer to purchase," explains [estate agent], "contains all the terms on which you and the seller agree, including date of occupation, conditions of sale, and fixtures and fittings."

The bond pre-approval process will ensure that, should an offer to purchase be accepted, you can afford the monthly repayments on the amount borrowed. A pre-qualification is valid for 90 days.

What supporting documentation will I need to apply for a bond?

Ooba lists the following documentation you will need when applying for a bond:

  • A copy of your ID document
  • A copy of the offer to purchase containing the seller's and purchaser's details (not necessary for a pre-approval)
  • Proof of income
  • You will need to produce a salary slip (not older than 2 months) or a letter from your employer with a breakdown of your salary and deductions
  • If you are self-employed then you will need a letter from an accounting officer confirming your income, or a statement of assets and liabilities
  • Six months worth of bank statements

Should I apply for a bond through a bank or a mortgage originator?

Mortgage originators are the "middlemen" between estate agents and banks. They examine banks' offerings, trying to find the best deal for the homeowner. They also assist in filling in forms and applications that are sent to banks. Some believe that going directly to a bank, rather, offers better value as there is a direct relationship between the lender and the institution. The decision, ultimately, is a personal one. The home buyer should never feel afraid to shop around until they find the best deal.

What happens if I can't pay off my bond?

Pay what you can. Don't ever stop paying off your bond. If the lender sees that you are making an effort, they are more likely to be understanding. A debt counsellor will advise you on managing your debt and could prevent you from losing your home. It's vital that you act sooner than later, however, as debt can quickly spiral out of control. Visit the National Credit Regulator to put you in touch with a debt counsellor: www.ncr.org.za

(IOLProperty)


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 20 Feb 2018
      The suburb of Greenstone in Johannesburg east came to be over the last two decades. “In the beginning, it was literally just a hill with not so much as a shopping centre,” says Michael Levy, Property Consultant at Jawitz Properties Bedfordview. Today it has plenty shopping facilities and is fully built, boasting high-density, upmarket housing and residential estates, though still has a few pockets poised for commercial development.
    • 20 Feb 2018
      A major shift in the ageing paradigm has precipitated an equally dramatic transformation in the retirement sector, with modern accommodation options worlds away from the conventional model.
    • 19 Feb 2018
      Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. “Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home. Having it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    • 19 Feb 2018
      The PayProp Rental Index Annual Review of 2017 shows that the rental market suffered from much volatility during the year. It kicked off with rental growth spiking in January with weighted year-on-year growth (YoY) growth peaking at 8.3% before dropping to 6.34% in July, dipping down to less than 5% in November and then experiencing a slight uptick at 5.75% in December.
    • 19 Feb 2018
      While most homes in cluster complexes, estates and other gated communities come with at least one garage or carport, residents would often like additional permanent parking or storage areas for things like trailers, bikes, boats and caravans.
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK