Although the property market may go through its ups and downs, one of the few things that does remain relatively constant is the demand for 100% home loans.Jan Kleynhans, chief executive of First National Bank (FNB) Home Loans, said over-indebted customers are still applying for home loans. But, the bank’s lending policy is that if you can’t afford it or have a dodgy credit record, you won’t qualify for a loan.
- A good credit rating: Kleynhans says the bank is particularly interested in how you have managed your finances during the credit crisis. If you ran into financial trouble a few years ago but have been rehabilitated and conducted your finances well in the past two years, the bank will consider your application. So, before you apply for a mortgage, check your own credit record at Transunion (011 214 6000 or www.transunion.co.za) and Experian (0861 1056 or www.experian.co.za). You are entitled to one free credit check a year. If there are any mistakes on the record make sure you sort them out immediately. Also ask your bank how it views your credit history with it.
- Affordability: The bank will lend you only what it believes you can afford to repay. Traditionally banks gave loans based on repayments of about 30% of your gross salary. But, with the National Credit Act banks are required to take your expenses into account. As customers are known to underestimate their expenses to qualify for a loan, banks assume that the average person spends 40% of his or her gross income on expenses with 30% going to the tax man. That leaves 30% to repay your home loan.The 40% includes all other debt repayments. If your expenses are higher than 40% you must either cut spending, buy for less or keep renting.
- Property Value and Types of properties:
In some situations, you may find that the value of the property far exceeds the price you’ve paid.
In these situations the banks are often very keen to grant you a full 100% bond, as their risk is covered by the extra value. If anything goes wrong the bank knows that you will be able to settle the bond by selling the property.Repossessed Properties
Currently, the banks each have loads of repossessed properties on their books. In an effort to sell these properties they have launched a campaign to grant full 100% bonds on these sales.
- Realistic valuations: The bank is not interested in how much you paid for the property but rather how much it believes the house is worth. Kleynhans says FNB uses its own valuation when issuing the mortgage. So, before making an offer, ask your bank to value the property.
- Keep it under R2-million: Although the amount differs among banks, there is a limit on how much banks will lend before requiring a deposit. Kleynhans says with FNB only a property of R2-million or less will qualify for a 100% home loan. Apparently there is a glut of properties on the market between R2-million and R3-million, which increases the risk of those prices coming under pressure. Kleynhans says this market segment also tends to have a lot of debt and banks are loath to extend further credit.
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