Home loans make homeownership a realistic prospect for the average person, but there are some requirements to buy a house that need to be taken into account.
- Banks are more willing to grant home loans in the current climate, making it easier to meet the prerequisites for buying a home.
- A good credit score and a sizeable deposit are significant factors in obtaining home loan approval.
- Buyers should also set aside money for the hidden costs of buying a house, and consider employing the services of a home loan comparison service.
So you’ve got your eye on your dream home, but you’re assuming that it’s beyond your reach. After all, only rich people buy homes, right?
Wrong. The willingness of banks to fund home purchases makes homeownership a realistic prospect for the average person, and the state of the current buyer’s market makes banks even more likely to grant the required loan, as property supply currently outstrips demand in certain areas.
Even millennials, many of whom have resigned themselves to being stuck in a rent trap, could meet the requirements for buying a house; and are encouraged to do so, as the cost of rent in the long-term can far outweigh that of early homeownership.
Everything you need to know about the requirements for buying a house
Of course, it’s not as simple as walking into a bank and demanding a home loan. There are some prerequisites, but they are easily achievable with a little bit of responsible financial behaviour on your part.
Requirements for buying a home include:
A good credit record
As far as your bank is concerned, your credit score is a big number above your head that tells them how much of a risk you are. It plays the most significant role in determining whether you get loans, such as a home loan, approved.
Your credit record is based on your financial history. Factors such as income, debt repayment history, and debts currently owed are taken into account. All this comes together to produce a three-digit number between 000 and 999, with anything above 680 being considered acceptable.
If it’s lower than that, your chances of getting a home loan are significantly reduced, but there are ways you can improve your credit score, such as paying outstanding bills, paying off loans, and refraining from opening new credit accounts where possible.
Although, as mentioned, banks are more willing to grant home loans in the current market, which in turn makes it possible to get a 100% home loan (a home loan that doesn’t require a deposit); the agreement between you and the seller (otherwise known as the Offer to Purchase) can require at least a 10% deposit.
Of course, the higher your deposit, the better your chances of securing home loan approval, as well as favourable interest rates on that loan.
In effect, a deposit is a sign of commitment on the part of the buyer and reassures the seller that the buyer is serious in his or her intention to purchase. So saving for a deposit is one of the ways to improve your chances of acquiring your dream home.
Prequalification certificate (optional)
Although a prequalification certificate is not a compulsory part of the home-buying process, it can certainly be of significant benefit. The prequalification process provides you with your credit score, and a solid idea of what you can afford, allowing you to house hunt with confidence.
Following the prequalification process, you are issued a prequalification certificate that you can present to an estate agent to prove that you’re pre-approved and ready to shop for your dream home. This is valid for 90 days.
How to get prequalified? By contacting an expert at ooba home loans, or by doing it yourself using their free, online tool, the ooba Bond Indicator.
A home loan
Naturally, the most important part of the process is obtaining a home loan. This is a loan from a bank that covers the cost of the home you are purchasing.
Factors mentioned above, such as your credit score, the size of your deposit, and your ability to repay the loan, will determine whether the bank approves your home loan application, and at what rate and terms. Once it does, the most difficult part of the process will be over, and you’ll be ready to go.
Of course, you’ll need to repay the loan in monthly repayments over the course of the bond, along with an amount of interest that depends on the interest rate the bank offers you. The interest rate determines how much you’re going to have to pay the bank, above and beyond the actual loan value.
Factors that affect the interest rate: Your main goal when applying for a home loan should be to secure the lowest interest rate possible. The size of your deposit, and your credit score, will affect the interest rate. You can also secure a more favourable interest rate by using the services of a home loan comparison service, such as ooba home loans. They will apply to multiple banks on your behalf, and compare the rates provided by each bank so as to provide you with the best deal.
Calculating your monthly repayments: The amount you’ll have to pay back on the home loan each month depends on the term of the home loan, and the interest rate. Most bonds are for 20 or 30 years, although it is possible to pay back a bond in 10 years.
You can use ooba home loans’ Bond Calculator to calculate the home loan you’ll likely qualify for, and how much you can expect to pay per month on your bond repayments.
Money set aside for ‘hidden costs’
Although acquiring a home loan is the most important part of the process, it doesn’t end there. What follows is a series of legal procedures, conducted by various attorneys, that involve transferring the property to your name. You should allow three months for this process, which ultimately culminates in the property being transferred into your name.
The fees you have to pay to the attorneys involved could be counted among the “hidden costs” of buying a home. This includes the cost of registering your bond, and the cost of transferring the property to your name, as well as the transfer duty (although this only applies to properties that cost more than R1 000 000).
You can use the ooba home loans’ Transfer Cost Calculator to determine what you’re likely to owe on bond registration and transfer costs. For example, a property costing R1 000 000, with a R1 000 000 bond, would result in a bond registration cost of R28 927 (incl VAT), and a transfer cost R22 889 (incl VAT).
Estate agent (optional)
Although hiring an estate agent is not a compulsory part of the process, it is highly recommended. The estate agent will guide you through the process of buying a home, providing insider information on the market in the process. They can help with the house hunt, and inform you of important information pertaining to the area in which you wish to purchase. And to top it all off, they cost you nothing, as their commission is paid by the home seller.
Home loan comparison: A helpful step in the process
A home loan comparison service, such as ooba home loans, can help you secure more favourable interest rates on your home loan by comparing multiple quotes. In fact, they can help you secure the home loan itself, as certain banks may have different lending criteria, and thus be more willing to approve your home loan.
In addition to that, they make the home buying process easier with their range of calculators, including some of those mentioned above. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.