Brief Home Loans Guide

New Home loans – how much can I afford?

Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties while prices spiral.
If you intend selling your home to upgrade, ask a mortgage originator for a valuation to give you an idea of how much you can invest in a new property.

A home loans consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements.

30% of Joint Gross Income

Monthly repayment affordability is generally around 30% of your joint gross income, but other criteria may affect the loan a bank will grant.
Remember that hidden costs (transfer, bond registration fees) may have to be paid upfront, and add substantially to the cost purchasing property.

Home Loans – Lending Criteria :
Bond applications may be declined for several reasons: you may not be able to afford the monthly repayments, or may require a 100% loan that would push the repayments beyond your reach.

Another critical consideration is your credit profile, which determines your credit risk to the bank. This includes your current income, employment history and consumer bureaux results, which holds your debt and payment history.
If the bank considers you a good credit risk, it will assess the value of the property to be purchased. If this too meets all relevant criteria, the loan is granted.

Home Loans – requirements:
To assist the bank in determining its risk, you will be required to provide personal information such as bank statements, salary or wage slips, a statement of assets and liabilities, plus information on your credit history, including whether you have ever been insolvent.

Home Loans – getting the best interest rate:
The lower the bank’s risk in lending to a particular borrower, the better rate it will offer.

In calculating its risk, the home loan provider will include factors such as: the repayment-to-income ratio (the ratio between bond payment and the buyer’s income); the loan-to-value ratio (the amount of equity you are willing to invest, offset against the amount of the loan); and the size of the loan.

Banks usually offer more favourable rates to buyers of higher-priced properties, as a higher-income client implies a lower risk. But you are less likely to be offered preferential rates if you will repay the bond within two years, as this impacts on the bank’s profitability.

The type of bond you apply for, your credit history and the investment value of the property you intend buying also affect the rate you will be offered.

Shop around and negotiate for the best package. A convenient way to do this is via a mortgage originator.

Home Loans – Fixed or Variable Interest Rates:
If you are working on a tight budget, it’s advisable to fix your rate now while the interest rate at first, even though fixed rates are usually higher than variable rates. Many people make the mistake of waiting for rates to rise before opting for fixed rates.

Before buying a property, stress test your budget to ensure you are not overextending yourself financially and will still be able to meet your mortgage repayments when rates begin to rise.

Home loans – Deposit Size:
While a deposit is not always required, try to cover the bond and transfer cost if you can, as the bank is more likely to offer you a better rate as the risk of the loan is reduced.

How can I bring down my monthly repayments?
The bigger your deposit, the smaller your monthly repayments will be, so put down as much as you can afford.
Paying in even small amounts over and above your normal repayment can knock years off the term of a loan
and substantially reduce the interest payable.

For Free Home Loans Assistance, contact A Bond Consultant.

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