Each bank has its own criteria and unique method of evaluating (scoring) your risk profile. In general, the higher your credit score, the better your chances of getting a bond. All banks are registered credit providers and have to comply with the requirements of the National Credit Act No. 34 of 2005 (“NCA”) when considering and granting mortgage loan applications.
From a practical perspective, if you want the finance, you have to comply with the bank’s criteria and requirements.
Generally, the investor’s go-to-guy would be a reputable bond originator, who would, without it costing you anything (except some time), manage the process on your behalf.
- Checking affordability. The property finance specialist will calculate and establish what you can afford, taking into account your specific financial profile. Affordability is calculated on joint net disposable income after existing monthly debt commitments and living expenses have been taken into account. Other criteria, for example the current interest rate, would determine the loan amount that the bank will grant.
- Get prequalified: The property investor could, to a large extent, ensure that the loan application is granted, by asking the bond originator for a prequalification. Most bond originators will do this prequalification at no cost.
- Check your credit record: Bond applications may be declined for several reasons. For example, you may not be able to afford the monthly loan repayments, in view of your gross monthly income & disposable income, referred to as affordability. Another crucial factor is your credit profile. This includes your credit bureau report, which provides a record of your debt and payment history. If your credit profile paints a picture of you as a good credit risk, the bank will assess the value of the property. If the bank finds value according to their criteria, the loan will be granted. The bond originator will motivate the merits of your loan application and the proposed interest rate to the bank’s credit department. Generally, the credit score required by a bank for a home loan is approximately 640 out of 705. A score above 600, but below 640, will give you an outside chance of home loan approval. A score above 670 is considered an excellent credit score.
- Submission of information: To enable the bank to evaluate and weigh the risk, you will be required to provide personal information and documentary support:
Copy of your identity document;
Latest payslips;
Bank statements for the previous three months;
Proof of housing subsidies, commission or regular paid overtime;
Marriage certificate and ante-nuptial contract, where applicable;
Summary of monthly expenses; and
Copy of the sale agreement.
If you are self-employed, you will be asked for additional documentation, such as:
A letter of drawings and signed financial statements;
Statements for both personal and business bank accounts;
proof of the company’s registration.
All lenders have to comply with the National Credit Act, in terms of whereof only 30% of your monthly income can be used to pay off debt.
The lower the risk in lending funds to you, the better the interest rate the bank will offer you. The bank will take into account factors such as the amount of your deposit and the amount of the loan (“loan to value”), the ratio between the bond repayment and your income, the amount you applied for, your credit history and the investment value of the property.
Should you require any further information or have any questions regarding your bond application, please do not hesitate to contact us. Our team is here to provide assistance and ensure a seamless process.