Your home loan application is probably the largest and longest loan you will make in your lifetime. We all aspire to having our own homes instead of renting from a landlord – (which pays off his property).
There are some important considerations to understand before planning to buy.
Your credit worthiness
Banks will want to be assured that you can afford the loan over the period.
Build this up with a credit card, paying off the full balance on time every month before the due
date which avoids any interest. You do not have to max out the card during the month. Just be in a position to pay it off comfortably at the end of every month. After a while the credit card company will recognise your credit worthiness and invite you to increase your available credit. This in turn will improve your worthiness with the banks.
The banks will scrutinise your financial stability
How long have you been employed? – The longer the better.
How much do you earn? – The more the better.
What are your current debts? – The less the better.
What is your disposable income after your monthly costs of living? – The more the better.
Your home securitises the loan
Banks work will lend a percentage of the market value of your home (loan to value).
Generally, they will lend up to 80% of their assessment of the value of your property. This subsides the risk should you default as they have 20% of the value to play with when having to sell off to recoup the loan. Banks will own your property until you pay it off.
So, to improve your loan application you should aim to have more than the minimum deposit of 20%. If you qualify on the 20%, take it and put the extra savings into the access bond once it is registered.
Follow the 30% rule
Your repayments should not exceed 30% of your monthly income inclusive of other debt repayments.. If you have other debts, these should be paid off as much as possible to improve your application for a bond.
Buy a home you can comfortably afford
Don’t get enticed into buying up to the maximum you qualify for.
Take into account probable interest rate hikes over the period of the loan which should not threaten your affordability. Ideally, if you buy a smaller property you can pay off sooner by increasing the monthly instalments.
A home you can comfortably afford and pay off sooner is a key aspect of a sound financial plan.