Home Loan Qualification Criteria for first time home buyers

Home Loan Qualification Criteria for first time home buyers

home loan qualification criteriaIf you have recently thought that you no longer want to waste money on paying rent and you would rather use the money to pay into a home loan then it is possible to do so. For your own purposes, using the mortgage calculator will give you an idea of what the payments will be according to the amount you wish to loan for the purchase of your new home. Continue to read the home loan qualification criteria to see what your chances are of getting the loan you need.

There are factors and criteria that are required to qualify for a home loan. This means that the bank needs to know that you are able to pay money towards the loan every month. Therefore proof of a job, the amount you get paid and how long you’ve worked at the company or if you are self employed you need to at least have 2 years proof, your ID is also important. As the bank needs guarantees, you would need to fit into a certain income bracket to qualify for a home loan which is calculated according to your means.

There are two options for first time buyers: 1.If you have money that you can put down as a deposit for a home loan or 2. you do not have a deposit and you qualify for a home loan then the bank can grant you over a 100 percent loan.

In order to determine the amount you will pay the bank back every month is based on the interest rate.  If you have money and you put a deposit down depending on the amount of the deposit in ratio the cost of the house; the bank will calculate a percentage using a loan to value ratio. This ratio refers to the amount of the bond that you’re applying for and the cost/value of the property you want to purchase.  The percentage that is calculated will determine the amount which will become part of the interest rate you pay every month.

The minimum bond you can apply for is between R100 000 and R150 000 so if your LTV which is your Loan To Value ratio is calculated at a low percentage this means that the interest rate will be low as well; as it is directly proportional to the interest rate in other words the lower the LTV percentage the lower the interest rate will be to pay the bank back each month.

If you do not have a deposit then you can ask for a home loan that covers everything. Often first time home owners do not have extra money to put down as a deposit so therefore the bank makes provision for this. A bond for over a 100 percent normally 110 percent bond will cover the cost of the home and other home loan expenses including transfer fees for example.  As there is always a time period associated with applying for a bond the norm in this case would be thirty years. As terms and conditions vary inquiring at a bank or using findbond.co.za can assist you with your requirements and needs.

Investing in your own home means that you can renovate or build on to your home as you like and you have the financial aid to do so. Many banks or financial institutions have requirements in order for you to qualify therefore making sure that you have a reliable and stable form of income is the first step to take to qualify for a home loan.

30 year home loan interest rate chart

30 year home loan interest rate chart

The home loan rate has changed dramatically over the last 30 years from a high of 22.75% in 1999 to it’s current low of 10%. Since the banks cracked down on their lending criteria last year, the mood has changed and the banks are again offering 100% home loans to qualifying applicants. The change is essentially in the percentage of the purchase price they are prepared to accept risk on while the qualifying criteria remain stringent.

This is a clear indication that we are moving out of the perceived recession and that the banks have faith in the future of property prices.

Salaried applicants with a clear credit record have never had it so good! Interest rates are at their lowest levels in 30 years and some analysts predict that the recent drop in the Purchasing Managers’ Index |(PMI) leaves the door open for another interest rate cut, in spite of the Reserve Bank’s earlier indications that rates should stay on hold. And although FNB’s latest house price index showed a further acceleration in house price growth from 10,1% to 11,9% in April, the current buyer’s market seems set to remain until at least the end of the year.

Self-employed applicants still find it difficult to secure bond approvals, but only if they’re not able to prove their income to the banks’ satisfaction. Ensure that your financial statements are up to date and choose a competent bond consultant to motivate your application properly, and you shouldn’t have a problem.

The miracle of compound interest! Play around with the Bond Calculator and you’ll see that by repaying an extra R312 per month on a R1m bond, you’ll knock 5 years off the term of a 20 year bond and save yourself R433 160!

Home loan application

Home loan application

When applying for a home loan, be it a new home loan or a second bond you will need to collect the documentation required by the banks to efficiently evaluate the home you wish to purchase, the improvements or alterations you wish to do as well as your personal financial documentation.

The documentation you present to the banks must be 100% accurate and in accordance with what your originator requests. Home loans have been turned down because of incomplete or unclear documentation. What they need to see is clear evidence of the source of your income, details of any additional income sources and the stability of your financial history.

Basic home loan qualifying criteria (personal)

  • A monthly income of at least R 15 000 (single or joint) is required.
  • Only residential properties may be financed.
  • All other normal credit criteria apply.

When making your application you will need to authorize the bank to obtain your personal credit profile from one of the credit vetting agencies like Experian. This is used only to evaluate their risk and will play a role in determining the interest rate the bank offers as well as the percentage deposit if any they require and whether or not a surety is required.

Documents required for an application

  • Fully completed and signed application forms.
  • Copy of your Identity Document/Passport (the person in whose name the bond will be registered as well as any sureties)
  • Proof of income in the form of payslips (at least 3 months)
  • Copy of the Offer to Purchase showing the property details.
  • 3 recent and months of bank statements showing your salary payment.

With these documents readily available the bond originator can begin completing your home loan application forms, check credit ratings and advise you of any additional documentation required or action to be taken on your credit profile.

The advice of a bond originator is vital to a successful bond application and an experienced bond originator will not submit your application until such time as he is confident that the banks will approve your home loan and he is in a strong position to negotiate a favourable interest rate. In some cases as much as 2.5% below prime interest can be achieved by a good originator dealing with a strong application.