Before you can get serious about buying a home, you need to get pre-approved for a home loan. When you are a pre-approved buyer and you are ready to make an offer on a property, it gives you clarity on what your loan amount will be.
What Is a Loan Pre-Approval?
Not everyone is eligible for a home loan, and those that are, need to have a realistic expectation of what type of home they can afford. A home loan pre-approval is an important step in getting a bond. Here is a look at the process.
Who Can Give Pre-Approval Certificates?
The traditional way to apply for a home loan was to go directly to a bank where they would assess your financial situation and then determine whether you qualify for a home loan and at what interest rate.
The arrival of bond or mortgage originators has given potential homeowners the option of applying for a pre-qualified home loan through multiple lenders, rather than limiting you to one bank. Through bond originators, you’re able to compare quotes and decide on the best option for you.
What Is the Process of a Loan Pre-Approval?
If you’re considering buying a home then you can apply for home loan pre-approval through certain avenues. Here is an overview of the home loan pre-approval options currently available.
1. Go to a Bank
You will need to make an appointment with your preferred bank’s home loan division. When you meet with them, you will need to provide them with:
Your latest payslip;
Three months’ worth of bank statements;
Proof of identification; and
Other relevant documents must be confirmed with the bank ahead of the meeting.
2. Go Online
A much simpler option that has emerged is the online process, which can be done through a bond originator. In the current low-touch economy, applying for pre-approval online is emerging as the preferred choice for many potential property investors. If you’re interested in trying this option, then here are the steps to follow.
Step 1: Choose an online provider
A bond originator or home loan comparative service will actually apply to a number of partner banks on your behalf. This allows you to seek pre-approval across a multitude of financial providers without having to spend time negotiating with each and every one.
Step 2: Create your profile
Once you’ve decided which provider you’re going with, you can quickly and easily create a user profile, inputting all the necessary personal and financial information that is legally required for pre-approval. Included in this are:
Your cellphone number for confirmation;
Your ID number;
Your monthly income and expenditure; and
Any outstanding loans.
When it comes to inputting your relevant financial information, needed to provide you with a credit score and pre-approval certificate, you’re able to either upload bank statements, import statements from your banking profile, or manually input the data.
Step 3: Home loan pre-approval certificate
Once you’ve successfully completed the online pre-approval process, you will be issued a home loan pre-approval certificate that you can give to an estate agent or potential seller to improve your chances of buying a home. The certificate is valid for 90 days from issue, after which you can pre-qualify again once you’ve confirmed your financial status remains unchanged.
3. Go Through a Consultant
If you’re looking to enjoy the benefits of getting pre-approval online, but prefer to actually deal with a person, then many home loan comparison services will give you the option of dealing with a consultant. As with the online application, this is a simple and straightforward process that involves a few steps.
Step 1: Contact
Make contact with the provider via email or phone, indicating that you would like to pre-apply for a home loan. A consultant should be willing to assist you almost immediately.
Step 2: Documents
The home loan consultant will require your financials, including income and expenditure, outstanding loans, as well as any other relevant data.
Step 3: Certificate
Using all this information, the home loans’ consultant will work out your home loan pre-qualification amount, as well as your credit score, and issue you with a pre-qualification certificate.
*It’s important to remember that a pre-qualification certificate does not guarantee the bank will give you a home loan. There are still a number of affordability checks, credit checks, and a property valuation that needs to be performed.
What are the benefits of a loan pre-approval?
There are many reasons that home loan pre-approval is beneficial, for the buyer, the seller, and the banks. Here’s a look at why.
It’s very easy to get caught up looking for a home online, only to discover that it’s way out of our budget. Before even beginning your house-hunting journey, a home loan pre-approval will give you a realistic indication of what you will be able to afford so that you can set those financial parameters early on and not be disappointed.
Included in your home loan pre-approval is your credit score which is important for the banks. This is an indication of your risk-level as it factors in all your past debt repayment behaviour. Banks will use this information when assessing whether or not to give you a home loan, and at what rate.
You are issued with a pre-approval certificate which can then be presented to any estate agent. Most estate agents are more likely to work harder for a client with pre-approval as it is a strong indication that you’re a serious buyer, that you have the necessary financial standing to buy a home, and that you have realistic expectations of what you will be able to buy.
A home loan pre-approval certificate is also a great way to show any potential seller that you mean business. The process of selling a home – like a process of buying a home – can be a lengthy and challenging undertaking. Some sellers are unlikely to engage with potential buyers who can’t prove they’re likely candidates for a home loan. Otherwise, it’s an endless process of showing a home and sales falling through.
Improve your chances
A home loan pre-approval only lasts 90 days and can be re-done thereafter. If you receive a poor credit score, that can be used as an indicator that work needs to be done to improve your financial standing when seeking a home loan.
What to Do Before Applying for Home Loan Pre-Approval?
If you’re looking to get home loan pre-approval, then there are certain steps you can take to better place yourself for home loan approval.
Step 1: Finances
You can get a home loan pre-approval to find out your credit score, but most of us already know if we are in a financially sound position or not. If you’re the latter, then you can do a personal audit, find ways to reduce your monthly expenses – cancel subscriptions and store accounts - look at opportunities to re-pay loans quicker, compare insurance providers for better quotes, and avoid getting into short-term debt.
Step 2: Investigate
Buying a house is much more than just the initial price tag. There are so many other costs associated with property investment that you will need to factor in, giving you a more realistic indication of the amount you’ll need to pay. These include:
Deposit – Most home loan applications are only approved if you have a 10% deposit to put down.
Bond registration costs
Transfer duty costs for properties more than R1m
Home loan initiation costs
Step 3: Support
South African citizens earning between R3 501 and R22 000 monthly are eligible to apply for a Finance Linked Individual Subsidy Programme (FLISP) which supports first-time buyers. There are also joint applications available for home loans where the bank considers the income and expenses of both applicants for a better chance of a loan.
Step 4: Shop Around
If you go through a bond originator or home loan comparison service, you’re able to gain valuable insight and assistance from professionals in the property industry. They can help you with all the relevant paperwork and negotiations with banks, finding you the best deal without the hassle.
Step 5: Decide on a Home Loan Type
Once you’ve got bond approval, you will need to decide on the type of home loan you want to go with. The two primary options include:
Type 1: Variable interest rate
The variable interest rate home loan is linked to the prime lending rate and will go up or down according to the prime lending rate. The variable interest rate is not as risky for lenders, which is why they tend to offer it at a more competitive rate.
Type 2: Fixed interest rate
This is where you commit to a single interest rate for a set period which is quoted by the banks at the start of the repayment period. You are liable to pay this amount, regardless of changes to the prime lending rate. The fixed interest rate is usually only offered for a short period, after which you will negotiate a new fixed-rate or revert to a variable interest rate.
Don’t get bogged down by all the admin involved in applying for pre-approval or a home loan. By partnering with an industry professional like Mortgage Market, you’re able to enjoy a hassle-free process that will see you buying your dream house in no time!