A home loan enables us to borrow money to purchase a property. But in order to qualify for a home loan, you need to understand the different home loan products available to finance the purchase of a home in South Africa so that you can determine which options you qualify for and which option will be the best deal for you.
This is an important step, as you could potentially qualify for a housing subsidy. So you would need to understand the different factors that are considered when you apply for a Home Loan, for example your income versus expenses, and your credit score to name just but a few.
It is also important to note that the qualification varies from lender to lender. And in many cases the financial institutions you are currently with will aim to give you the best deal in terms of an interest rate in an effort to keep you as a long-term-paying client.
Income to debt ratio
You need to be able to pay the monthly installments of your your Bond. Lenders will review your bank statements in addition to any additional incomes you may have. This is to ensure that you are able to afford the home loan. Most home loans are over a period of 20 or 30 years. This it is important to ensure that you can repay the monthly installment over this time.
The next aspect of income is your primary source of income, generally this would be your place of employment. Lenders will ask for proof of employment in addition to your most recent salary slips. You will also be asked about how long you’ve worked for your current employer.
Lenders want to ensure that you can afford the home loan long-term.
Credit Score
Your credit score is important and can greatly affect your chances of getting a home loan. This is because your credit score is linked to your financial records and is calculated based on several factors such as being able to make your loan repayments on time, your spending habits and your age for example.
Ideally you want to firstly ensure that you have a credit score. Without one it is unlikely you will get approved for a home loan. Most South African banking apps allow you to check and monitor your credit score. There are also other online tools and apps which can offer additional insights and tips to improve your credit score.
You can check and monitor your credit score with ClearScore for free.
Deposit
If you are able to save to put down a deposit on your home purchase, you may be able to reduce the interest you pay over a long time in addition to showcasing your commitment to the purchase. This may act favorably when you are being considered for a Home Loan. Some lenders may even require a certain percentage such as 5% or 10% as a deposit for a home, however this is very rare today and homes can be purchased without a deposit.
First Home Finance
First Home Finance is a once-off subsidy which enables qualifying first-time home buyers to buy or build their first homes on an affordable basis. The subsidy was developed by The Department of Human Settlements.
First Home Finance is available to South African citizens and legal permanent residents whose household income is from R3 501 up to R22 000 per month. The subsidy that a you can qualify for is dependent on the total household gross income on a sliding scale ranging between R38 911.40 and R R169 264,60.
You may use First Home Finance in combination of a mortgage loan and most forms of housing loan products.
To qualify for First Home Finance, you must meet the following criteria:
- South African citizen with a valid ID; or permanent resident with a valid permit;
- Over 18 years and competent to legally contract;
- Has not previously benefited from a Government Housing Programme from any sphere, arm or entity of government;
- Have never owned a home as checked from the Deeds Register;
- Have an Approved of in Principle Approval of a home loan from a NCR registered bank or non-bank lenders or other Policy approved partners such as community based organisations; and
- Total household income must be within the income range of R3 501 up to R22 000 per month.
To improve your chances of getting approved for a Home Loan you can work on lowering your expenses as well as reducing any debts that you may have. Ensure you make any debt repayments timely so that your credit score does not get negatively affected. A good credit score will show that you are able to meet your financial obligations.
To improve your chances of qualifying for a home loan you can use online home loan application from banks to get pre-approval before proceeding with the purchase of a home. This way you will know whether or not you firstly qualify for a home loan, and secondly the amount that you qualify for.