Alternative to home mortgage finance

Alternative to home mortgage finance

An alternative to Bond finance geared at small business owners. Small to medium business owners are finding it more and more difficult to qualify for bonds from South African banks who are desperately afraid of the high failure rate of new businesses in South Africa.

Banks are risk averse these days that if you are self employed, in a sales position without a fixed salary or any other employment where you have no guaranteed fixed amount of income, getting a bond is becoming almost impossible, even with large deposits and security, Crazy as it may seem, this is the reality of the home loan market.

Of course entrepreneurs like ourselves see opportunity where there is adversity and some have entered this market, offering self employed individuals the opportunity to purchase a home. Essentially you are offered creative finance from private equity companies who charge a fee and a slight premium on the money they loan to you. The idea is to make use of the bond alternative for 3-5 years at a slight premium, create a good payment track record and on the basis of that record, hand you back to the banks as a low risk customer.

In reality what the alternative to home mortgages are, are lease agreements where you lease the property for a period on a lease to own basis and once the loan is paid up, you take transfer of property. By doing this the finance company does not need to go through any expensive legal processes to repossess the property should you not make the required payments like a bank has to. They can simply cancel the lease and use the deposit to charge a cancellation fee.

Owning a home for a small business or self employed individual should not cost a premium. We are after all those that are creating jobs and stimulating the economy but alas, our government and banking institutions make it difficult for us. We chose this life because we get up and make things happen, so use those that make things happen, make it happen for you.

Bond Pre-Approval for Home Buyers

Bond Pre-Approval for Home Buyers

Getting a bond pre-approval before you go shopping for your home is the the very best way to negotiate from a position of strength and when making what is likely to be the biggest investment of your life, the position you want to be in right from the outset.

With a bond pre-approval by the banks you are effectively walking in to a negotiation with fist full of cash. You know exactly how much the bank is willing to lend you for your bond and the seller has no idea how far to push you. He also knows, or at least his agent will know that as the holder of a bond pre-approval certificate you are a very serious buyer and not just a tyre kicker.

bond pre approvalSo to set you off on the right path, use bond originators to collect the documentation required by the banks. The originators will then prepare the documents for submission to the various banks, follow up on the progress, negotiate the best possible rate for you and then come to you with the bond pre-approval criteria from the various banks.

Always read the offers presented by the banks, not all of them will be the same rate and some may even offer reduced conveyancing fees or other benefits to get your business. One thing that is always a good one to check and is very simple to get pricing on is the Bond Insurance. You will know within minutes if the cost of the bond insurance is better or you can save a bit every month on your bond.

Either way, when you are armed with a bond pre-approval, you will receive the very best service from any of the estate agents you use as there will be no doubt about your ability to have your bond approved. As I stated above, a bond pre-approval is as good as a fist full of cash when you are buying a home, so use the high ground to negotiate a great deal for yourself.

Getting a Second Bond – Application Success

Getting a Second Bond – Application Success

Second bonds or further loans, is money that you loan on top of the original bond amount, based either on what you have repaid in the capital amount or an increase in the value of your property, or a combination of both.  If your second bond or further loan application is accepted you can use this money for basically anything from home renovations to buying a new car to paying your child’s school/university fees.

apply-for-second-bondA second bond is making a loan on the money that you have already paid for on your existing bond.  The difference the amount originally registered over your property and the current balance can be made available for your use should your bank see you as a good risk (Your payment history will be one of the determining factors in this).  It generally takes a good couple of years of paying interest or if you are very lucky your property value will have increased significantly, before a usable amount will be available to claim on from the capital amount.

The procedure is very similar if the value of your home has increased and you wish to increase the amount of your original home loan.

It is important to note that you may also make use of a bond originator to make the application on your behalf. This can often take a lot of the headaches of dealing with a bank directly out of the equation and help to speed up the process as the bond originator will not make the application unless he feels your chances of success are very good.

Documentation required for application (The financial institution may request additional documents)

Employed applicants with a fixed monthly salary

  • A copy of your ID
  • Most recent Payslip
  • 3 months bank statements
  • Statements of your personal assets and liabilities
  • A personal monthly expense statement
  • A copy of your water and lights account
  • A bond statement

Employed applicants with a Variable income

  • A copy of your ID
  • Latest 6 months consecutive payslips
  • 6 months bank statements
  • Statement of your personal assets and liabilities
  • A personal monthly expense statement
  • A copy of your water and lights account
  • A bond statement

Self employed Applicants

  • A copy of your ID
  • Letter from auditors to confirm income
  • 2 years financial statements signed and audited
  • 6 months personal banking statements
  • 6 months business banking statements
  • Statement of your personal assets and liabilities
  • A personal monthly expense statement
  • A copy of your water and lights account
  • A bond statement

The Qualifying criteria to apply for a second bond/further loan are:

  • You must have an existing home loan account
  • Your home loan payments must be up to date and have a good track record of payments
  • There should be sufficient equity in the property
  • You have to qualify for the extra amount that you require from an affordability perspective
  • You cannot be on ITC, and you must have a good payment record.
  • The second loan/further loan will be done as per the normal home loans procedures for the credit approval.

Legal Entities

  • Copies of Id’s for all the members, trustees or directors
  • The minimum documents required as mentioned for Employed and self employed applicants
  • The companies registration documentation / the trust deed / and the articles of association
  • 2 years signed and audited financial statements.

We have only mentioned the bare minimum requirements and should the bank need additional documentation they reserve the right to request it but with the above guideline you are well on your way to application success, but above all, be very honest with yourself and ask the question, “Can I really afford the additional payment?”

If you are not 100% sure that making the extra commitment will be easily affordable, try using the debt reduction calculator that will help you determine which debt to reduce and pay off before you increase your bond payments.

Know the Home transfer procedure when selling or buying your home

Know the Home transfer procedure when selling or buying your home

Selling your property involves yourself, the buyer, the bank and various attorneys.  Understanding the process will make it less stressful for you and give you the opportunity to prepare all the required documents to speed up the process and have the necessary cash available when required. (yes, it does cost you money upfront to sell your property)

Before you put your property on the market, please check the home staging article to ensure you get the best possible price.

The Selling process

Offer to Purchase

Once a buyer has signed an offer to purchase, in most cases it will be subject to a bond being granted by a bank, the buyer needs to apply for a bond with his bank or a bond originator.

soldApproval

Once the bond is approved the bank will advise the bond attorney to register the bond.

Transfer

You the seller will then advise the transferring attorneys to begin transfer of the property.  The bank will then provide the transfer attorney with the title deed and the settlement figures if there is still a bond over the property.  The transferring attorney requests a statement of rates and taxes from the local municipality.  The local municipality will provide a figure which is approximately three months of your average rates and taxes which will need to be paid by you before the transfer can proceed.  The bond and transfer attorneys correspond regarding the guarantees which stipulate the guarantee requirements for the draft deed.

Settlement

A guarantee from the bank is sent to the attorneys who will prepare to cancel the bond over the property once the guarantee has been received.

Legal

The transferring attorney will ask the buyer and the seller to come and sign the transfer documents.  Once the buyer has paid the transfer costs, the transferring attorney then pays the rates and taxes as well as the transfer duty fees.  Once this is done a bond attorney will then prepare all the documents for the bond together with the relevant account.  Once all the documents have been prepared the buyer will sign them and pay the costs.  Thereafter the bond attorney will prepare and issue the necessary guarantees and have them forwarded to the transferring attorney who will prepare the bond documents for the lodgement in the deeds office.  Once the transferring attorney has received the guarantees, they will then be forwarded to the cancellation attorney.  The cancellation attorney will get the consent for the cancellation from the bank which holds the sellers bond.  When all the documents have been signed and all costs have been paid the transfer, the new bond and the cancellation bond documents are prepared by the respective attorneys for the lodgement in the deeds office.   As per the agreement between the deeds office and the attorneys concerned all the documents are lodged.  It usually takes about 2-3 weeks for the deeds office to check the documents before they are ready for registration by the attorneys on the same day.

The entire process can take up to three months in the absence of any hiccups.

How to avoid delay in your property transfer

All personal information of the seller and / or buyer must be provided

The seller must provide the details of the bank holding the existing bond.

The bond holder must provide the cancellation figures and the title deeds to the transferring attorney. (The seller can get involved to ensure it is dome speedily)

You must have the rates figures (local authority) and/or the clearance certificate (transferring attorney).

The buyer must pay the deposit timeously in terms of the agreement (if required).

All guarantees to be provided.

The buyer must pay the bond and transfer costs on time.

The seller must not delay in signing the transfer documents.

The buyer must not delay obtaining government capital subsidy approval or employee subsidy documents for new bondholders, and with any other requirements the bank might need.

The buyer must not delay in signing the transfer and/or bond documentation.

Try to have one attorney to handle all of the requirements.

The major reasons why bond applications are rejected

The major reasons why bond applications are rejected

bad credit bondFigures from Leading Reals Estate agents are showing that Bad credit records are the most significant cause of Bonds that are being rejected and this is not isolated to an individual bank, all of South Africa’s banks are likely to reject the same application if the applicant has a bad credit record.

The events that cause the most problems are firstly judgments and secondly if there are any amounts that have been written off as bad debts by banks. These two events will put your chances of getting a bond at almost Nil. It is so important to monitor your credit record which is freely available to you once a year at no cost from Trans Union.

Affordability and a shortage of good cashflow are also major reasons the banks are rejecting loans and based on what we have read, the applicants honesty at declaring their correct expenditure plays an important role here. It is also important to pay particular attention to how your conduct using your banking accounts will be perceived by the banks. If you regularly go over your overdraft limit or have rejected debit orders, this pays a big role in how the banks view your risk profile.

Perhaps the most contentious is the poor approval history for those who are self employed. Being self employed and being able to prove your income is the issue that the banks are most concerned about, so take a good look at your bank statements, both personal and business, and calculate your proveable income before applying for a bond.

There are other factors such as poor financials that can be rectified and it is important to note that you need to provide all of the information requested by the banks, in a format that is easy for them to make a decision from or your bond application will be rejected. Honesty about your expenditure is paramount, you could burn your chances by dishonest.

 

 

First Time Home Buyers Loan

First Time Home Buyers Loan

first time home buyers loanA first time home buyers loan is a big step for most new home owners and as a new lender, the banks will compete for your loan providing you are able to show them that you are not a bad risk.

We must never forget that every bank is competing for market share and as a prospective new customer for them, they will earn interest on the first time home buyers loan that they offer to you. The next step for the banks once they have you as a customer is to upsell you into the other products that they have to offer like cheque accounts, investment accounts, personal loans and other banking services. They also now have access to your spouse or children through your account by offering reduced fees to spouses or study loans to your children.

Bear this in mind when making an application for a first time home buyers loan and never accept the interest rate that they first offer you. The fact that the bank approves your first time home buyers loan means that they want you as a customer and this puts you in a position to negotiate the interest rate. A home loan is a long term loan that attracts a huge amount of interest over the years and even a 0.5% reduction in the interest rate will see you saving a lot of money over the period of the first time home buyers loan.

Use the home loan calculator to see what you will save if you are able to negotiate a reduction in your interest rate.

With Interest rates at their lowest in decades in South Africa it opens up the market to more and more first time home buyers whose income now allows them to loan more than in previous years. First time home buyers often qualify for 100% home loans in particular on government subsidised projects but on many other projects where the developers have consulted with the banks on the valuation of the property and constructed their pricing accordingly.

Banks are more and more risk averse but with developers realising that they cannot simply work on a return basis when pricing properties, they understand that if they consult with the banks and make it easy for first time home buyers to loan from the banks they will sell out their development a lot quicker.