Buying a home can be a complex and stressful process, and trying to find the money can be daunting. If affordability is a problem then co-ownership is becoming a viable option for an increasing number of first time home buyers according to a number of commentators.
“We have seen a major increase in joint applications received in the last quarter, this is mainly driven by affordability as it is much easier to obtain a bond on dual income as opposed to single income,” said Monde Motha, channel manager at FNB Homeloans.
According to figures from Betterbond, an average of 48.13% of bond application submissions received were from one applicant and 47.55% were joint bond applications between January and June 2013.
South Africans appear to be accepting that in some circumstances owning a home as an individual is not possible.
“With the average bond being issued amounting to R 950 000, you would need to earn a total gross income of around R 30 000 (based on a 20 years bond at 9.25%). There are many South Africans who do not earn this amount, however, with joint applications they may find qualification achievable,” said Craig Chinnappen, bond consultant form Bond Busters.
The trend of buying a home with financial help from a family member or friend is already an acceptable practice in the United Kingdom. UK bank, HSBC, has found that three out of five young Brits (60%) with aspirations of home ownership admit that they cannot afford a deposit for a first home without financial help from their family.
Adrian Goslett, CEO of RE/MAX of Southern Africa said that “due to the vast number of buyers who are choosing to co-own with another party, many lenders do offer joint home loan accounts or mortgage packages that cater specifically for this situation.”
When Justmoney canvassed the major lenders it found that Capitec and Standard Bank are happy to grant first time buyers a joint home loan with a friend or relative.
Downside to joint loan
With a joint home loan all parties share in both the benefits and the penalties of the loan.
“With more applicants comes more risk,” said Gladice Cadaweti, a bond consultant from Betterbond.
“To protect both co-owners, each partner should keep a record of all documents and payments made that relate to the property they jointly own. If one person defaults on any of the payments, all partners will be held liable,” advises Goslett.
“It is recommended to put down as big a deposit as possible, Which in turns allows the bank to further reduce their risk and your interest rate. You need to ensure that you can afford your monthly commitments before making any big decisions. It is important that you do not commit yourself beyond your means and struggle to meet the monthly repayments, “said Motha.
Capitec
Capitec has recently partnered with SA home loans to bring the “Capitec simplicity approach” to home loans.
To apply with Capitec, clients will need to be between 16 and 60 years old, and must not be under any debt counselling.
After the client has applied at one of the Capitec branches, SA Home Loans will be in contact within a few days.
Thereafter, the client will need:
· A copy of signed offer to purchase.
· ID document (for joint home loans, both applicants’ ID documents).
· Copy of marriage certificate and/or antenuptial contract.
· Three months’ salary slips.
· Three month bank statement(s).
Home loan applicants don’t have to bank with Capitec to be able to apply for a home loan with the bank.
Standard Bank
With its joint home loan offering Standard Bank clients can apply by themselves or with a partner as long as they or their partner have not owned a property.
On Standard Bank’s websiteit says: “You may qualify for a loan of up to 104% of the value of the property, provided the loan amount does not exceed R 1 million and depending on your affordability and risk profile. The "extra" 4% may only be used to pay the transfer and bond registration costs.”
Other rules by the bank state that you must:
· Be 18 years or older or be an emancipated minor.
· Earn a single or joint gross monthly salary of R3 500 or more.
· Have transaction account with Standard Bank into which your salary is deposited.
· Have home owners insurance once you have taken occupation.
Tips for home loan applicants
· “Understand what interest rate you are paying on the bond. Reassess this interest rate after 5 years, as your monthly bond instalment primarily consists of interest repayments during this period, and then reassess every few years afterwards,” said Chinnappen.
· Make sure you have all relevant documents when applying.
· Make sure your bond doesn’t eat up all your earnings. According to SA Home Loans, “as a general rule, your bond repayments, together with taxes and property insurance, shouldn’t exceed 25% to 30% of your gross income.”
· Shop around for different home loans to find the best one for your needs.
· “Applicants need to consider the other costs that are associated with home buying such as levies, rates and taxes. Applicants need to be wary of the transfer and registration fees payable to the attorneys prior to making such a purchase,” said Motha.