Buying your first property may be daunting. There are so many factors to consider, such as the state of the neighbourhood you’re looking in and the property market at the time.
But what about your financial situation? Which factors will influence your ability to be approved for a home loan and successfully purchase your first property?
Justmoney found out when the best time is to buy property, what you can do to improve your chances of being approved for a home loan, and what impact your salary has on this.
Tip: To find out whether you’d be approved for a home loan today, click here.
The minimum salary you need
According to Marcél du Toit, founder and CEO of Bondspark, when the banks consider your affordability, they look at your salary, total monthly expenses, interest rate, and home loan term to work out which home loan you can afford.
“Banks work out your affordability on your gross income. One-third of your gross income is the highest monthly instalment a client should pay on their home loan,” says Du Toit.
For example, if the client earns a gross income of R30,000, their monthly instalment cannot exceed R10,000.
“You need to also keep in mind that you need extra money for the bond costs and transfer fees as these costs are over and above your monthly bond instalments,” says Du Toit.
Which other factors play a role?
According to Simon Stockley, an independent banking consultant and founder and former CEO of SA Home Loans, there’s no hard and fast rule about what will ensure a home loan.
“This decision is made based primarily around the lender’s requirements, which revolve around affordability and a subjective assessment of a borrower’s perceived credit worthiness,” says Stockley.
“For example, self-employed individuals will be assessed more harshly because of perceived risk around income variability, than someone in regular, salaried employment,” he adds.
Stockley believes that the best thing one can do – and also the hardest – is to save a sizable deposit.
“Banks will generally be reluctant to extend loans for the full purchase price, so a potential homeowner should have saved at least 10% of the purchase price of the property,” says Stockley.
Can the government help?
Stockley recommends that potential borrowers check with their employer to see if they qualify for a housing or state subsidy, which may aid the question of affordability. For example, there are many state or parastatal entities offering housing subsidies as an inducement to employment.
Du Toit agrees that it’s worth considering government subsidies. He explains that the government provides a once-off payment subsidy for first-time buyers who are SA citizens and whose household income falls between R3,501 and R22,000 per month – terms and conditions do however apply.
If you suspect you don’t earn enough to qualify for a home loan, have a look at the following organisation that helps with subsidies.
How to prepare for your first purchase
Stockley points out that saving for a deposit and reducing short-term debt, such as credit cards and personal loans, can help you prepare for the day you decide to buy your first property.
“In fact, it is imperative that your credit profile is “scrubbed” and any potential blemishes rectified before applying for a bond. Otherwise, a potential homeowner runs the risk of having their loan application declined,” says Stockley.
“In practical terms, the best thing you can do is to establish a clear career plan, because stable and secure employment is often considered a vital pre-requisite for homeownership,” he adds.
“Remember, property is essentially a long-term investment, and you should have a clear idea on where you are headed in your life and career before considering buying a property,” he advises.
Is there an ideal age?
Du Toit believes that the earlier you start, the better. “A bond has a lifespan of 20 to 30 years, which means the older you get, the less likely you are to qualify for the loan term. If you start in your twenties, you should be able to qualify for more than one loan in your lifetime.”
According to Debbie Ferns, resales manager at Renprop, if you receive an inheritance or money from family members, you will legally be allowed to purchase property from the age of 18. However, if you need to take out credit, you will, among other things, first have to build a credit score.
On the other hand, Stockley points out that it’s unlikely that an individual will have established themselves in a career and have saved a deposit by the time they are 18 years old.
“Nonetheless, as with any long-term investment, you should start as early as possible, and ignore any short-term noise or market fluctuations,” says Stockley.
Steps to follow when purchasing property
There’s a lot to consider when purchasing property. Du Toit recommends considering the following questions while on your property journey:
- Why do you want to buy property? Are you looking for a primary residence or an investment?
- In which area would you like to buy? It’s helpful to do some research on the growth in the area as well as the lifestyle and schools that the area offers.
- What is your budget?
- What kind of property are you looking for? Remember, sectional titles have levies that need to be included in your monthly costs.
But where do you even begin? Stockley suggests taking the following steps to ensure you are successful:
- Save for a deposit.
- Research the market and lending options widely – knowledge is key when making your first offer.
- Contact bond originators, estate agents, and property professionals active in the area you're considering buying in. Many of these institutions offer a wide range of free tools and resources you can utilise before making your first offer.
- Reduce short-term debt and clean up your credit profile.
- Remember, property is a long-term investment – if you are not settled or uncertain about your future, rather delay the decision to buy.
- Ignore short-term market fluctuations. You will never be able, particularly as a first-time buyer, to call the market right. If all or most of the boxes are ticked, take the plunge and invest.
If you believe you’re ready to take on your first property, click here to get a quote for a home loan.