If you’re ready to start investing in your first home, your dreams may have been knocked aside when you saw the cost of a reasonable property in your neighbourhood.
In order to afford a home in South Africa, many people take out home loans. But what exactly is a home loan, and how should you go about getting one?
What is a home loan?
As noted by Andrea Tucker, director of MortgageMe, relatively few people have the cash to buy a property. For the remainder, a lender is needed who is willing to put forward the funds. These funds comprise a home loan.
“Home loans are generally taken out over 20 to 30 years, and because they are secured by an asset, they are seen as less risky by banks,” says Tucker.
She explains that a home loan is paid off in monthly instalments, which are calculated based on the loan amount, the term of the loan, and the interest rate charged.
How to take out a home loan
If you’re interested in taking out a home loan, Tucker says that a good place to start before you look at properties is to educate yourself. She suggests asking yourself for example whether you know what a credit score is, and how it’s calculated, and whether you have a good handle on your personal budget.
“Be sure to assess your income and expenditure. Affordability calculation is a critical guide in your property hunt,” says Tucker.
“Once you know what you can afford to pay out of your salary on a monthly basis, you can narrow down the property search to those properties that fall within this budget,” she adds.
Next, Tucker recommends writing a list of what you’re looking for in a property, and where you’re willing to live, based on your work, school, and family needs.
“House hunting in 2021 means you will rely heavily on the property portals for an idea of which properties are available and the prices being asked for them. You can request to see houses in person and compare the glowing website photos against what it really looks like,” says Tucker.
She suggests keeping the following steps in mind once you’ve chosen your preferred property:
- Making an offer to purchase your dream house is the next step when you’ve found “the one”. This is a contract between yourself, as the buyer, and the seller.
- Once the seller accepts your offer, you have approximately 14 days to get finance from a bank.
- You can take out a home loan through a bank. Alternatively, you can work through a mortgage originator, such as MortgageMe, to apply and compare offers from up to four banks.
- You’re going to need a copy of your ID, three payslips, three months bank statements, and your signed offer to purchase (assuming you’re a normal salaried individual and South African).
- The banks will assess your credit viability (how risky are you as a potential customer) before making you an offer.
- The easiest part of buying a home is selecting the best offer for you!
- Approximately three months after you have signed your credit agreement with a bank, the bond gets registered and lodged at the deeds office and the property is yours. This is when you can move into your new home!
Should you take out a home loan?
Tucker says that if you have a good credit score, regularly pay off your existing debt, and make sensible decisions when it comes to affordability, a home loan will be a good addition. It will also allow you to own an asset once you have managed to pay it off.
“Having a decent-sized deposit to put down against the property upfront, and additional costs to fund the fees involved with buying a property and registering it makes it a less stressful process. So, start saving before you even start property hunting,” says Tucker.
For more visit: www.justmoney.co.za
