While setting enough money aside for a deposit for a home is in itself a financial feat of epic proportion, it is not the only financial consideration that would-be home owners need to make when preparing to dip their feet in the market.
According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, having savings set aside is a vital element for home ownership preparation. However, there are also several financial blunders that potential buyers can make, which will complicate their prospects of being able to purchase a property. “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,” Goslett adds.
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. The first is that is 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.
Stay away from additional debt
“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.
Consumer debt accounts for a large percentage of a buyer’s credit score. While a late payment on any consumer debt will have a massive effect on a credit score, the type and the time since the last late payment also matter. “You should pay off any accounts that are due, before applying for a home loan,” advises Goslett.
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. Purchasing large items on credit before applying for a bond will reduce your chances of approval, as well as the amount that the bank is willing to give them.
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.
Don’t change jobs
Lenders prefer applicants who have a steady, stable income and they take the length of employment into account.
“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 back burner for the time being. Either hold out of changing jobs or buying the property.”
Don’t buy to the max of your limit
While tempting to look for a property at the full limit of what the bank is willing to give, if it is not what you can comfortably afford, it is not a good idea. The home loan repayment is not the only monthly expense that needs to be taken into account. Try to stay within a price bracket where you can comfortably manage the monthly bond payment and have something left over. By looking at homes below your maximum limit, 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.