Can't get a home loan? Then Rent-to-Buy!

So many South Africans can simply not get a home loan, because they do not have a 15% deposit as required by the banks, nor enough further savings over and above this to cover the transfer duty and bond costs that have to be paid out-of-pocket when buying a home. 

Others have impaired credit records that exclude them from obtaining home loan finance, while some are considered high risk by the banks because they already have extensive credit commitments and lack sufficient affordability.

"If you cannot obtain a home loan from the banks, don't simply give up on your dreams of owning your own home," says Meyer de Waal of Oosthuizen & Co Meyer de Waal Attorneys. "While it requires a slightly longer-term strategy, there is an alternative approach: Rent-to-Buy."

De Waal explains that before granting a home loan, banks will require a good credit rating, proof of affordability - that the prospective homeowner can pay the home loan instalments each month - and, most likely, a deposit. "If prospective homeowners cannot fulfil all of these requirements immediately, they will have to wait longer to own their own home, while they build up a good credit record, proof of affordability and a deposit. But this could mean losing the opportunity to buy the ideal property and/or paying more for a property a year or two down the line. Rent-to-Buy is the solution to this problem."

Essentially, the Rent-to-Buy approach involves the prospective homeowner securing the ideal property at today's market value by signing a rental agreement on the property for 12 or 24 months, with an option to buy the property at the end of the rental period at a purchase price fixed at the commencement of the agreement. During the rental period, the prospective homeowner pays a rental that is slightly higher than the average market-related rental and equivalent to the monthly instalments on a bond for the property. This allows the prospective homeowner to build up proof of affordability over the rental period, as well as time (6 - 24 months) to rehabilitate and maintain a solid credit record. Furthermore, a portion of the additional rental can be credited to the buyer on transfer to be used as a deposit when the property is purchased at the end of the rental period.

As such, the benefits for buyers include taking immediate occupation of their dream home and securing the property at a purchase price based on today's buyers' market, without the immediate upfront requirements of a deposit, bond approval and payment of transfer duties, legal costs and bond registration costs. While the buyer is occupying the property, he/she has the time to build up the deposit, a solid credit record and proof of affordability.

The seller benefits as the buyer assumes responsibility for the levies, rates and taxes, and maintenance, and receives an above-average rental income, which can be insured through the unique Rent-to-Buy insurance product to ensure the rental is received in full and on time each month and to cover the costs of recovering outstanding rentals or evictions.

"The Rent-to-Buy concept will help prospective home buyers who cannot obtain a bond now to make their homeownership dreams come true, while also relieving distressed or keen sellers from the financial responsibilities involved in owning a property," concludes de Waal. "It is a win-win situation for all involved and a practical alternative for those who have found their dream home but risk losing the opportunity because they cannot get a bond approval immediately."

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