Your Bond Affordability ‘Score’
Is there such a thing? With research it seems that between the banks the variables are many and the absolutes are few. After working out what you can afford with your bond calculator one will have to take your chances depending very much on the bank.
ABSA Home loans singled out ‘Affordability’ as having become a key factor in the South African housing market recently. You may know what you can afford having used a bond calculator to work out what asking price you can afford but the banks have varying, between banks, criteria on which to base its decision to grant you a bond.
Affordability is a key factor in the South African housing market and banks’ lending criteria has tightened up, but in some instances applicants are reportedly still able to qualify for 100 per cent loans.
ABSA has been quoted in a previous review that the focus of demand for supply of housing is set to be on smaller-sized and higher density housing because affordability is set to remain a key factor into the future.
ABSA also said it still lends up to 100 per cent home loans to would-be home buyers even in this buyers’ market but only if they qualify.
In line with the National Credit Act, the bank’s lending criterion is informed by the customer’s affordability and credit worthiness and taking into consideration some factors as discussed below.
Bond Assessment Criteria
When a local property website asked the four major banks what the criteria are for assessing a home loan application the summarised replies were:
Standard Bank: a loan–to-value criterion plays a major role in what the customer can qualify for; documents required depend on whether the applicant is employed or self-employed, has a Standard Bank transactional relationship or not and if they earn a fixed or variable income.
Generally, document requirements are less onerous for customers that have a transaction account i.e. Employed SBSA applicant with fixed income would need to provide the latest payslip and an offer to purchase.
A non Standard Bank customer with fixed income would need to provide the latest payslip together with the latest three months consecutive bank statement reflecting three months’ salary deposits.
Nedbank: minimum income (single or joint gross monthly income) + R2500- minimum loan amount R100 000. A maximum repayment term of 25 years. An acceptable credit record. Payment by debit order. The property must be in good condition and acceptable to the bank
FNB: latest copy of applicant’s payslip. A bank statement. Self-employed applicants will need to supply a signed personal statement of assets and liabilities as well as a balance sheet and financial statement for the business from which income is derived. A commission earner will be required to submit the last six months commission earnings statement.
ABSA: Current debt repayment behaviour; credit history; affordability; net disposable income; household finances; residential property cycle and prospects; prevailing economic cycle; consumer risk profile.
Preapproval of Bonds
When asked if the bank would give pre-approval of a bond with no upfront fees: this could be worked out and adjusted using a bond calculator.
Standard Bank: A customer can apply for a pledge via the internet or through the Standard Bank Call Centre. No fees are charged for pre-approvals.
Nedbank: Does not grant pre-approvals. Customers can read through the information on the bank’s website to determine what they can afford through various calculations and thereafter use a bond calculator.
FNB: It is called a “Passport to Purchase” where no upfront fees are levied and this pre-qualification is valid for 90 days.
ABSA: According to the National Credit Act, financial services providers are prohibited from granting pre-approved finance to customers.
Sceptics may reflect that this is hardly a scientific process but at the end of the day banks are conservative for a reason. What’s best, is to ensure you have jumped through all the necessary bureaucratic hoops with the bank of your choice and ensure you are taking advantage of a bond calculator to keep the correct figures at hand.
So what is a pre-approved bond when it’s at home in front of the fire warming itself? One web definition says that a “pre approved bond gives both the buyer and seller the assurance that the buyer can afford offers made within a certain price brand, and that they will qualify for the bond required to make the offer.” So let’s unpack that some more.
How It Works
When you use a bond calculator it’s reassuring to know what to compare figures to, what to feel comfortable about investing into the selling price field. Getting yourself a pre-approved bond is the very first thing you should do before you put in an Offer to Purchase.
The National Credit Act stipulates that monthly deductions, like monthly living expenses, income tax and debt need to be considered. It is recommended that you provide your bank or home finance professional with a precise summary of your monthly expenditure and your level of debt so your pre-approved figure can be established. Your bank or home finance professional will formulate your pre-approval figure and issue you with a certificate. This enables you to provide an estate agent with a pre-approval certificate that has been calculated according to the National Credit Act requirements.
The pre-approval is valid for 90 days after which your bank or home finance professional should contact you to check whether your expenses have changed over this period. (It’s better not to wait to be contacted but rather contact them a few days in advance.) If there has been a quantifiable change, the pre- approval will be revalidated and recalculated. If there is no quantifiable change to either income or expenditure, your bank or home finance professional will reissue a revalidated certificate. This ensures that your input data for the bond calculator is always accurate.
After the banks have assessed your home loan application, and if the application is successful, the bank will issue a Quotation which will include interest rate, cost of credit, any special conditions that may apply, etc. Your bank or home finance professional will discuss this and other bank quotations with you. Once you settle on a Quotation, your bank or home finance professional will proceed to instruct the attorney appointed to register the mortgage bond.
Advantages of having a pre-approved bond
It can be so frustrating for a seller to accept an offer only to find out weeks down the line that the deal has fallen through due to the buyers inability to get a home loan. It can also be very disappointing for the buyer. With a preapproved bond this can be avoided. Using a bond calculator you can determine what you aspire your preapproved bond to be.
Bear in mind when dealing with sellers and Estate agents that they want to sell to you! You are holding the cards when it comes to buying and you will seek out the very best deal available to you. This attitude will make the seller think twice before counter offering and will have the Estate agent working twice as hard to close the sale.
One should be encouraged to be assertive when making an offer, apply for bond pre-approval before you go out on a show day.
The posture of the Estate agents, like anyone who is dependent on financial institutions giving credit to customers in order for them to earn an income, is very different towards a pre-approved buyer, especially one who has clearly gone to the trouble of doing the necessary homework with a bond calculator.
The agent knows that you are looking for a home and that you essentially have the money available. This is a huge bonus for the agent who will go out of his way to help you spend your money.
The other thing the agent will be very aware of is that you don’t have to spend your money with him/her but there will be other agents out there trying to help you spend it. The result is that once you have made an offer he will do everything in his power to get the seller to accept your offer.
Currently we are living in a buyers market with some areas selling homes for as much as 30% below their asking price. Both the agent and the seller know this, the pressure is on the seller to accept what he knows is an approved buyer when you walk in..
Good luck with pursuing your preapproved bond