How To Get A Homeloan, From Credit Score To Deposit

With prime lending rates still at their lowest level in almost half-a-century, homeownership, especially for first-time homebuyers, is not as distant a dream for many.

Banks have been approving 100% loans, which have boosted the property market as home buyers take advantage of the opportunity.

Currently, about 80% of bond applicants have been approved for 100% loans, with some putting down an on average deposit of 9%.

But, before the prospect of homeownership can materialise, homebuyers need to meet a set of criteria to get approval for a home loan.

What you need to know when applying for a home loan in South Africa

Your bond repayments coupled with taxes and property insurance should not exceed 25% to 30% of your gross income. Prospective buyers can use an online bond calculator or a bond consultant to determine how much they can afford on a home and what their monthly installment is likely to be.

Lenders will want to consider whether you are a high- or low-risk borrower, which is determined by your credit score, a point-based system that banks use to assess whether you can afford debt and if you honour it on time. The higher it is, the more likely you are to get approval for your loan.

There are several tools and resources you can use to calculate your credit score.

South Africans are, by law, entitled to one free credit report each year which can be accessed through credit bureaus.

“600 points plus, is normally what banks will look at, there might be a small margin, but generally, they’re not going to look at you if you’re below 580,” says Rhys Dyer, CEO at ooba Home Loans.

“If they’re not happy with your payment profile and your credit score, they’re not going to give you a loan at all; it’s reflective of how you’ve managed debt in the past, your credit card payment behaviours, any other debt like vehicle finance, other home loans.”

“A higher credit score increases your chances of receiving a better interest rate,” he said.

Apart from your credit score, the bank will assess whether you will be able to pay your loan comfortably.

The bank will calculate what you pay in monthly installments derived from the amount you are borrowing, the repayment term of the home loan, and the interest rate offered by the bank.

“If you are concerned about keeping your monthly repayments down, we would recommend putting down as large a deposit as possible. Doing so will reduce your monthly bond repayments as well as the interest paid to the bank over the term of the loan. A large deposit also gives you more leverage when negotiating your interest rate,” Dyer said.

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