One of the most exciting things you can do is buy a home. However, in many instances people get so caught up in buying their dream home that they can make some typical mistakes which could ultimately make the lose money or even prevent you from stepping up onto the property ladder.
“If you want to give yourself the best possible chance of success when applying for a bond, you need to avoid certain financial missteps during your home buying journey,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
He provides buyers with a few things to avoid:
- Avoid letting your credit score drop
According to Goslett, there are two main reasons that a favourable credit score will help. Firstly, it will improve your chances of bond approval, and the second is that it will impact on the interest rate the bank is willing to give on the loan. “Any late payments on credit accounts will hurt your credit score, so it is important that all payments are made on time,” he advises.
- Stay away from additional debt
It may be tempting to spend more when you are house-hunting. Perhaps you want new things for the bathrooms or a change in décor to the main bedroom. But it’s easy to get carried away and to borrow money if you can’t afford all the extras. “During the home buying process, it is also best to avoid applying for additional credit such as store accounts or credit cards, as multiple credit enquiries will have a negative impact on your credit score. You should ideally focus on paying down any existing debt to around 30% or less of the limit and correct any errors on your credit report,” says Goslett. Ideally, you should pay off any accounts that are due, before applying for a home loan if you are able to.
3. Avoid the urge to splurge
During the home buying process, don’t go on any credit-driven retail splurges or buy any big-ticket items such as a car. Goslett says that even if you purchase a big-ticket item with cash, it can raise flags with the lender. Large withdrawals from your account might require an explanation during the bond approval process.
4. Changing jobs
You need steady, stable income to look favourable with the banks. Your duration of service to your employer will also count. “Financial institutions like it if you have a stable employment record with at least six to twelve months or more in the same job with a regular income,” says Goslett. “If you are considering a change in career and buying a new home, you should put one decision on the backburner for the time being. Either hold out of changing jobs or buying the property.”
5. Don’t max yourself out
Dream comes can come with an expensive price tag and you may be tempted to take on the full loan amount that you qualify in order to get the home you want. But this could mean landing into financial trouble pretty soon after your purchase. Rather go for homes that you can afford. There are many advantages to this. For instance, you will also be able to compete with other buyers in a multiple-offer situation.
“Avoiding these mishaps will help you to prepare for home ownership financially. Being equipped and prepared is the first step to achieving your goals,” Goslett concludes.