How To Apply for a Home Loan
There are currently four banks in South Africa that offer home loans to people buying houses, Absa, First National Bank, Nedbank and Standard Bank. All four have slightly different home loan packages, but the procedure you will need to follow is pretty standard.
The Documents You Will Need to Produce
Whichever bank you apply to, there is specific documentation that you will need. This includes proof of your identity (unless you are a foreigner, you will need your small green South African identity book), a marriage certificate if you are married, a divorce decree if you are divorced, and proof of what you earn. If you are employed, all you will need is your latest pay slip or a certified letter from your employer stating how much you earn each month. However if you are self employed, the bank will want to see at least six months’ bank statements. The law also requires that banks obtain proof of residence, meaning that you have to prove where you live. For this you will need a current and valid lease agreement or a current utility bill, electricity or water for example. Sometimes people prefer to purchase property in the name of a trust, a company or a close corporation, in which case additional documentation will be required. If you have already made an offer to purchase a property, the bank may want to see this as well.
It is vital to work out how much you can afford to spend on a house. All the banks have consultants who will help you do these calculations if you aren’t sure how to do them yourself. Basically what they do is to deduct the total amount you spend each month from what you earn. Whatever is left is called disposable income, which is money you can use to repay the loan. In general, the banks will also use a rule of thumb that allows borrowers to work on a maximum of 30% of whatever they earn. They also usually work on the joint income of married couples. However you need to remember that unless you opt for a fixed interest rate, there is always a possibility that the interest may increase at a later stage, which will have the effect of increasing your monthly repayment. It could of course also decrease, which is why many people prefer to opt for a variable rate of interest.
Some of the home loans that the banks offer are for 100% of the purchase price (for example FNB’s SmartBond), which means that you may not need to pay a deposit. However this is not always the case, and you may need to put down about 20% of the cost price of your new home. One particular loan offered to non-residents of South Africa, also from FNB, requires at least a 50% deposit.
The Application and Bank Requirements
You will make a formal application to the bank of your choice after you have signed an offer to purchase a home. The bank will then follow certain procedures to make sure you are a good financial risk, can afford to repay the loan and that the property is worth what you are offering to pay. First they will do a financial assessment and check your credit record. If there are judgments against you, or if you have been blacklisted as a bad payer, it is very unlikely any bank will agree to give you a loan of any sort. Then they will organize to have the property assessed and valued.
Once the home loan has been approved in principle, the bank’s lawyers will attend to all the legalities, including registration of a mortgage bond and transfer of the property into your name. Invariably you will be required to take out a life insurance policy that will cover the cost of the bond if you die unexpectedly. The final step will be for the bank to pay the person who is selling the property to you.