Applying for a home loan in South Africa can make you feel like a newbie in an advanced CrossFit class – not sure where to start, your head spinning, heart racing as you try to complete a list of prescribed exercises with multiple reps, in the shortest amount of time, all while doing your best not to be tripped up, as you push towards your end goal!
With the right guidance though, you can clear the obstacles course with ease, set a manageable pace, and achieve your milestones successfully. So here are here are five things you should definitely avoid when applying for a home loan to ensure your journey to homeownership is as smooth as a hot knife through butter.
1. Forgetting About Your Credit Score
Your credit score is like your financial report card, and lenders use it to decide if you’re a reliable borrower. A stellar credit score can help you snag a better interest rate and boost your chances of approval.
What to Avoid:
- Ignoring your credit report: Identity theft and random billing is sadly a thing, so regularly check your credit report to catch any errors, or sneaky fraudsters.
- Missing payments: Late or missed payments can lower your score faster than a dropped catch in a Protea’s final.
- Racking up debt: While “good debt” is important to create a credit history, high debt levels are massive red flags to lenders.
Tip: Before applying for a home loan, give your credit score a makeover by paying off debts, making timely payments, and fixing any mistakes on your credit report.
2. Not Saving Enough for a Down Payment
In South Africa, lenders usually want a down payment of about 10% to 20% of the home’s price. Not having enough saved can put a serious damper on your home loan approval.
What to Avoid:
- Underestimating the down payment: Make a list of all your expenses and then use a bond calculator to give you an idea of how much of a bond you could potentially qualify for, as this will give you a good idea of the size of the deposit that you need. Start saving sooner rather than later.
- Dipping into your savings: Resist the urge to use your down payment fund for other expenses — no matter how tempting that vacation might be.
Tip: Open a dedicated savings account, just for your down payment, to keep it safe and then watch it grow like a well-watered garden. A money market account for example, will allow you to access the funds relatively quickly, while earning reasonable interest on the money saved.
3. Skipping Pre-Approval
Getting pre-approved for a home loan is like getting a golden ticket to house hunting. It shows sellers you’re serious and gives you a clear budget when you’re shopping for your dream home.
What to Avoid:
- Skipping pre-approval: Without it, you might fall in love with a home you can’t afford, leaving you feeling like a kid in a candy store with no pocket money.
- Thinking pre-approval guarantees a loan: Remember that while it’s a strong indicator, it’s not a sure thing. Final approval on a home loan requires a deep dive into your finances.
Tip: Get pre-approved through your bank or a trusted bond originator before you start browsing homes. It will save you time and heartache.
4. Making Big Financial Changes
Banks and other bond originators are huge fans of financial stability. Major changes to your finances before or during your application can send them running for the hills.
What to Avoid:
- Changing jobs: While career growth is great, switching jobs right before applying can make lenders nervous, even if the new job brings a better salary with it. If you’re switching jobs rather wait a year to show that you’ve settled in well and are stably employed.
- Big purchases: Hold off on buying that shiny new car or extravagant furniture until after your home loan is approved as a change in your monthly expenses can negatively impact your bond affordability score.
- Opening new credit accounts: New debt can lower your credit score and scare off potential lenders.
Tip: Keep your finances steady rather than making waves in the months leading up to your application. Rather delay any major financial moves until after your loan is secured.
5. Pretending Extra Costs Don’t Exist
Buying a home isn’t just about the purchase price and down payment. There are all sorts of extra costs lurking around the corner, ready to ambush your budget like the surprise birthday party you didn’t want.
What to Avoid:
- Ignoring hidden costs: Transfer duties, bond registration fees, and attorney fees can pile up faster than the dishes after that surprise birthday party. On top of that, you’re looking at moving costs, deposits for opening new electricity, water, and local municipality accounts.
- Ignoring monthly expenses outside of your bond repayments: Your monthly rates and taxes can catch you off-guard if you are not prepared. This is particularly true for first time buyers who haven’t had the benefit of a professional estate agent taking them through the costs associated with homeownership.
- Underestimating maintenance and repairs: Think that charming old house just needs a bit of TLC? Think again. Make sure you pay for an independent home inspection before signing on the dotted line, so you have a clearer view of the costs involved in bringing the house up to code (if the current owners opt to reduce the price rather than fix issues). If you’re thinking of alterations or additions to your new home, particularly just after you’ve bought it, speak to an architectural professional who can give you an indication of the costs involved as it might be wiser to purchase a home that already has everything you need in it.
Tip: Craft a detailed budget that includes all potential upfront and monthly costs, so you’re not caught off guard.
Embrace the highs and avoid the lows
Applying for a home loan doesn’t have to be the rollercoaster ride from hell. By avoiding these common mistakes, you can pave a smoother path to homeownership. With a bit of planning, some solid advice, and a sprinkle of patience, you’ll be unlocking the door to your dream home in no time.
Let Transafrica Property, Finance and Legal take your hand on the most exciting journey of your life. We’re re here to guide you through the process and make your property ownership experience as smooth, effortless and enjoyable as possible. We’ll help you with the paperwork, making sure all requirements are met before submitting to all major South African banks on your behalf, saving you the time and hassle of submitting to all the different banks individually.
