Buying a home can be a good investment and a step towards improving your net worth, but if you don’t do it wisely, you could get yourself in big financial trouble. A family home can be incredibly costly, so instead of paying a lump sum, a lot of people decide to take out a home loan from a bank or some other financial institution.
Taking out a home loan means that you agree to pay for the full cost of your house plus interest over a set amount of time. Your monthly payments will depend on what kind of rate or payment scheme you choose. But before you are able to take out a loan, the bank or mortgage company will decide if you are eligible or credit-worthy.
They need to know if you are financially capable of paying the loan in full and if you have job security and enough disposable income, which determines whether or not you will be able to pay your monthly dues.
Each bank or financial institution has its own set of requirements for home loan candidates. Most institutions require candidates to be at least 21 years of age and to have been employed for at least two years with a minimum salary of between R10,000 and R20,000. Most, if not all, ask for these basics: proof of identification, proof of physical address, and documents to assess the credit score.
These are the documents typically required for the initial application:
- At least two valid IDs or certified copies of each
- Electricity bill, water bill, or any other utility bill
- Your social security number and/or income tax number
- Signed offer to purchase
- Bank statements or income tax forms
Self-employed business owners will be asked to produce copies of their bank statements (business and personal) and for an official financial statement from an accountant or auditor stating the candidate’s monthly income. Those who are employed full-time will need to submit their bank statements for the last three months and a copy of their last pay slip.
Once you have submitted all these, the bank will evaluate your credit-worthiness and Loan-to-Value Ratio or LTV, which determines the amount of interest that will be applied to your loan. Nowadays, many banks use an automated credit scoring system to perform this task, but the system isn’t perfect, so you may still be asked to come in and explain something about your credit history.
Remember that if you are a first time home buyer, you might be able to qualify for a bigger bond if you apply for the home jointly with your partner. Also, the lower the LTV, the lower the interest you have to pay. This means that the bigger the amount you can deposit for the property, the smaller the interest rate will be on your mortgage. But if you don’t have money to make a deposit for your new home, you can seek out banks that offer no deposit bonds.