When you are ready to apply for a home loan, you can be better prepared by taking steps to ensure you are financially ready for the commitment of homeownership. Many applicants make the mistake of not realising the extent of costs involved in buying a property.
By understanding what you can and cannot afford, and the extent to which banks will investigate your viability for a home loan, you will be able to better plan your finances and find the home that suits your needs and your budget.
Be financially prepared
Nondumiso Ncapai, Managing Executive: Absa Home Loans says that to prepare financially, those in the market for a home should consider saving up for a deposit, paying down as many of their existing debts to free up disposable income and maintaining stable employment in the period leading up to their home loan application. “All of these aspects will reflect positively on an applicant’s ability to repay the home loan they are applying for. By being well-prepared, potential homeowners can help the bank process your application more efficiently and increase your chances of a smooth approval process.”
Another important and crucial factor is your credit score. Banks depend on this rating to determine whether you are a good candidate for a home loan. If you have a negative score, it is important that you address and correct this before making the home loan application.
Pre-qualification
Assuming you have a seen a house you’d like to purchase, by applying for a pre-qualified home loan, you will have a good indication of how much or type of house you can afford. Whilst this is not a guarantee that you will secure a home loan from a bank, it is a great guideline if you are search for a house.
Ncapai explains that for many a property purchase is a big decision, especially for first-time buyers, representing the most significant purchase in their lifetime. “As a result, the processes surrounding this purchase can be daunting. At Absa our goal is to make the home loan application process as simple as possible, which is why we equip any prospective buyers with a range of digital resources, such as our pre-qualification tool, to assist in navigating this big step.”
The formal documents
When you have found the house you can afford based on your pre-qualification, the next step is to apply for the home loan. Putting together all the formal documents that most banks require in advance will not only potentially save you some time, but will also indicate to the bank that you are a well-prepared applicant.
Whether applying to Absa or another home loan provider, Ncapai says that there are several essential documents potential buyers need to provide, “as well as some that may be required under special circumstances.
“To expedite the loan process and ensure seamlessness, potential homeowners may consider gathering all required documents and keep them in a central, easily accessible location and reviewing their credit history report for errors which they can then address proactively,” says Ncapai.
Essential documents
Identification: South African ID or valid passport to verify your identity.
Income verification: Latest payslips (last three months) to show current income.
Bank statements (last three months) reflecting all income earned.
Employment verification: Employment history including employer details and job titles.
Debt information: Existing debts such as credit cards and personal loans to evaluate the applicant’s debt-to-income ratio.
Offer to purchase: The sales agreement signed by both the buyer and seller.
Optional or Special Circumstances documents
Rental history: If an applicant is renting, a history of rent payments could demonstrate their reliability.
Divorce decree: If applicable, to verify alimony or child support payments.
Bankruptcy discharge papers: If an applicant has filed for bankruptcy in the past, these documents are needed to show the bankruptcy has been resolved.
Self-employment documentation: If self-employed, additional documents like profit and loss statements, 1099 forms, and business tax returns may be required.
Not all these documents necessarily require certification but it is always a good idea to have them notarised as a backup. Your ability to provide as accurate and organised financial documents, such as those required, is a critical step to ensuring the smoothest loan application process. However, if you still remain uncertain about the documents you need to provide, speak to your bank’s home loan professionals, who will hand-hold you through the process.
