If you are considering purchasing a home in the year ahead, there are a number of steps that can be taken now to ensure that you make the most of your home buying power. Debbie Justus-Ferns, divisional manager of Renprop Residential Resales, says that prospective buyers need to start working on their financial profile as soon as possible to ensure that they stand the best chance of getting bond approval in the course of the year ahead.
Justus-Ferns provides prospective buyers with some top tips to help ensure they are financially fit and ready for bond approval:
Build up your disposable income and stability
“Disposable income is possibly the single most important factor that banks take into account when determining a home loan applicant’s purchasing power,” says Justus-Ferns. “This means that potential buyers need to live within their means and work hard at paying down their debt in order to have as much disposable income available as possible.”
Justus-Ferns points out that financial institutions also look at the risk profile of the industry and company in which the home loan applicant works as well as their career history. These factors are then weighted against the industry average. “The financial institutions are looking at the job security of the applicants. It is also important for applicants to be able to show job stability, which means not moving around from job to job too frequently.”
Budget well and service your savings
Budgeting properly is essential for any prospective buyer – firstly to be able to demonstrate sound money management ability, but also so that they know how much they are spending each month and what they are spending their money on. “Having a clear picture of their spending habits will allow prospective buyers to streamline their finances and prepare for home ownership”, says Justus-Ferns. “Getting financially ready to purchase a home will mean setting a budget that includes household costs, setting financial goals and working out how much you can afford to pay on the bond each month. Budgeting however also means making financial provision for life after bond repayments.”
Prospective buyers need to build up their savings too – most buyers know they need to preferably save up to 10% of the purchase price of the home they want to buy as the chances they will be granted a 100% bond are often slim. But savings shouldn’t only cover the deposit, according to Justus-Ferns.
“I always suggest that young, first-time buyers save between 5% and 10% of their monthly income. Aside from demonstrating good money management and having cash set aside for a deposit, savings will come in handy for the transfer costs as well as for when unexpected events happen that don’t fall within their budget. Saving a set amount each month is just generally a very sound financial habit.”
Make use of online tools
Setting a proper budget and working out bond repayments with interest to include in the budget may seem daunting. But Justus-Ferns says that there are a number of online budgeting and home loan repayment tools that prospective buyers can make use of to make their task that much easier.
Added to that, Justus-Ferns suggests that prospective buyers make use of online applications with relevant bond originators or financial institutions to check out the size of the home loan they will be pre-approved for. “Prospective buyers should bear in mind that pre-approval isn’t a guarantee that they will be granted a bond, or even how much they will actually be granted, but it gives them a very good idea of the price range they should be shopping in,” she says.
The details count
When filling in home loan applications, buyers should be as honest as possible about their income and spending. “Any discrepancies will be picked up and may jeopardize the loan being granted,” says Justus-Ferns. Buyers should also be aware that they need to be SARS compliant.
Justus-Ferns points out that buyers should also ensure that their payslips are correct. “You would be surprised at how often people discover that their payslips are not an accurate reflection of their earnings when they apply for finance. The amount reflected on the payslip will impact on the total home loan amount granted, but more importantly, it will influence a buyer’s affordability in the eyes of the financial institution. Therefore it is essential that buyers check the details and ensure that their earnings are properly and accurately reflected on their payslip.”
Justus-Ferns also says that buyers should declare any assets and investments on their applications, as these will add to their purchasing potential.
She concludes by saying that being financially fit to purchase a property is essential because if it’s done correctly, buying a property is a big step towards building up wealth as property is a long-term, appreciating asset.