For many prospective purchasers, applying for a home loan is essential to securing the purchase of their dream home. Sadly, the possibility of rejection, which is usually attributed to poor credit history, residence instability, cash flow problems, or frequent job-changing, is ever-present. Accordingly, it is imperative that purchasers take various steps to minimise the risk of rejection.
Thinking of applying for a bond? Here are five essential tips to improve your chances of securing bond approval and, consequently, obtaining their home of your dreams.
Opt for pre-qualification to assess your affordability
Obtaining bond pre-qualification gives you access to your credit score and a realistic estimate of the bond amount you can afford – and your monthly bond repayments. While pre-qualification does not guarantee bond approval, it will enable you to embark on a property search within the suitable price range based on your affordability. Take advantage of free prequalification services offered by banks and mortgage bond originators.
Improve your credit score
Maintaining a healthy credit history is crucial to securing bond approval. While financial institutions’ criteria for home loan financing varies, a minimum credit score of 600 is typically required, with scores above 650 deemed favourable. Improve your credit record by settling outstanding debts, closing outdated credit accounts, and paying your bills timeously. In addition, avoid applying for new credit in the months preceding your bond application.
Reduce your debt-to-income ratio
Many South Africans underestimate how much their smaller debts affect bond applications. In some instances, store card balances or personal loans could be the difference between approval and rejection. Accordingly, before applying for a home loan, pay down credit cards, personal loans, and store accounts. Ultimately, a lower monthly debt commitment will improve your affordability and enhance the bank’s confidence in your ability to repay your loan.
Submit accurate information and supporting documents
Upon application, provide the bank with detailed and accurate personal information, including bank statements, pay slips, monthly expenses, and your employment history to assist it with accurately assessing your application – and to avoid undue delays and disappointment.
Secure the best interest rate
Various factors impact your interest rate, namely the deposit paid to secure the purchase price, bond amount, and your debt-to-income ratio. In addition to your credit history, the investment value of the property impacts the interest rate. Consequently, it is essential to submit applications to numerous banks, compare the offerings of each bank, and negotiate the best package to optimise your chances of securing a competitive and affordable rate.
For expert legal guidance, contact us at info@stbb.co.za to speak with a property law professional today.
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