Guiding consumers since 2009

How to get the right home loan

By Staff Writer

A while ago we reported that home loan grants have increased by 20% year on year. However, the number of applications being declined has also increased according to estate agents Engel & Völkers (EV). Bank statistics have shown that over the last few months 100% home loans have dropped by 20% of all applications approved.


Banks are tightening up their lending criteria and it’s important to know what you are in for if you want to step onto the housing ladder. Becoming a successful homeowner means doing your homework, knowing your credit status and being in control of it. Banks are even more cautious now than what they were, so it’s best to be prepared.   


But if the idea of getting a home loan frustrates you more than doing your taxes we’ve consulted an expert and asked him to answer the most pertinent questions you would have:


Should I shop around or stay loyal to my bank?
While banks have tightened up their lending criteria, that doesn’t mean you shouldn’t shop around for a good deal. “Banks are no longer the homogenous institutions that they used to be, so one should shop around and compare prices.  One should try to secure the most favourable interest rate,” says Clive Pillay ombudsman for Banking Services.


Besides the interest rate, Pillay stresses that other costs should be borne in mind as well. These costs include conveyancing costs, deeds office fee, initiation fee charged by the bank, transfer duty, insurance premiums as well as monthly bank administration fee.  “All these factors need to be borne in mind as well as the fact that banks work on the 30% income rule.  This means that banks will not usually grant a home loan if the monthly repayments exceed 30% of your income,” adds Pillay.


So what interest rate are banks charging?
Pillay says this varies considerably depending on the individual. “Banks do an affordability assessment. Banks do what they call pricing for risk. The higher the risk the higher the interest rate. If one has a good credit record with stable secure employment, one is likely to secure an interest rate that is lower than someone else who has a bad credit record with an unstable work record,” he says.


How do banks decide whether to give you a loan?
Banks will assess you based on how well you’ve dealt with debt in the past. If you’ve been late in paying debts or have any court judgments chances are very slim that they will award you a home loan.


Is it possible to get a 100% mortgage?
With house prices still high, few people find it possible to put together the ‘ideal’ 10% or even 5% deposit required by the bank. “But the reality is that it is highly improbable that one will be able to secure a 100% mortgage.  Most institutions require a deposit. The extent or the amount of the deposit varies,” says Pillay.


 

Recent Articles

Featured What’s the deal with underwriting?

When you apply for a long-term insurance policy, a financial adviser will ask some personal questions about your lifestyle, family history, health, and even ask you to take some medical tests. This process is called underwriting, but is it really necessary?

 

How are you taxed on your retrenchment package?

Unemployment is one of the biggest problems in South Africa. The emergence of the Covid-19 pandemic has exacerbated the situation with a lot of companies retrenching their employees.  When retrenched, you’ll receive a retrenchment package, but do you know how much tax you’re liable for?

Car repossessed – don’t be taken for a ride

When the country is facing an economic downturn, chances are your finances will feel the pinch. This can lead you to make bad financial decisions such as skipping your vehicle payments. But every decision has consequences and if you don’t pay your instalment, the bank will repossess your car. But what can you do when this happens?

 

Why you should consider gap cover

Your medical aid should protect you from incurring large medical bills when you’re sick. But what if your plan doesn’t cover the full cost of your medical expenses? We got in touch with insurance experts to find out whether gap cover is worth having.

Deals

Office furniture at discounted prices at BDK

Price: Available on request
When: Daily
Where: Johannesburg

Da Vincis Happy Hour Special

Price: Available on request
When: Daily
Where: Cape Town

Use your Absa card and get 30% cashback at Dis-chem

Price: Available on request
When: Daily
Where: Nationwide


Latest Guide

Guide to debt rehabilitation solutions