First-time buyers: Here’s how to actually DO what your bank expects18th Feb 2019
As a prospective first-time home buyer you have seen many articles telling you that at the rate things are going now, you’ll be practically ready to retire by the time you are able to buy your first, entry-level home. Bond approval of first-time applicants has increased, but more than 60% of first-time applicants are still being rejected.
To compound the frustration, your newsfeeds are probably clogged with ‘advice’ pieces telling first-time buyers what you need to look like on paper to qualify for your dream first home. Despite the fact that more first-time buyers have deposits and favourable debt-to-income ratios, bonds are being denied, with lenders’ appetites not quite matching that of prospective buyers, for whatever reason.
It could be argued that this disequilibrium stems partially from prospective buyers just not knowing enough. You know you need to save for a deposit and have a favourable credit score. But did you know you actually need to have some debt and that applying for absolutely the maximum your affordability calculations show you can qualify for, may mean your application will be rejected?
Meyer de Waal, owner of My Bond Fitness, an exhibitor at the upcoming Property Buyer Show in April, says that all the tips you’ve been reading are correct, but here’s how to actually become proactive in your journey to homeownership.
Become an expert
The first thing many of us do before we buy a new mobile phone, TV or even a pair of running shoes is we research. We look up the product online, compare specs and read countless reviews before finally making our decision. You would think most of us would do that on the biggest purchase of our lives – a house. The thing is, we don’t.
De Waal suggests that not only should you research the housing market extensively, comparing properties in your desired locations, but also get a Comparative Market Analysis (CMA) to compare the price you are being asked to pay with other prices in that neighbourhood. More often than not the estate agent involved will offer you a one-pager with information on the property. You should definitely request more information!
Buying a house is a 20-year commitment and one that should not be entered into lightly. A good agent will assist with sales trends and comparison of apples with apples in the area using systems such as PropStats by the Institute of Estate Agents of South Africa (IEASA). If these aspects never enter into discussions with your agent you need to demand it, or find a new agent to represent you.
Top tip: Lightstone provides buyers with a website where they are able to obtain a CMA on the property they are interested in. It is important to remember that property trends do fluctuate, so the CMA is just a guideline and not an accurate representation of the property market.
Check your credit score
The major stumbling block in most property sales is financing, with only one in four home loans being approved. What many of us do not realise is the importance our credit score plays in this decision.
Your credit score will determine the rating the bank and other financial institutions give you after examining how you have handled credit in the past. If you have a “thin” profile and little or no debt, it generally means you have little information the bank can analyse and you may find it strange that the bank may request that you first open a store account to establish a credit profile and then come back to them.
If you are in the market for a new home, there are many online sites where you can personally check your credit score; this will help you to work out how much you could qualify for. By knowing your credit score, you have the chance to improve it over time. This could potentially save you up to 30% on your bond payments.
After you have found out your credit score, you can check your affordability. This takes into account your income and expenses, working out the size of the loan you could potentially get from the bank. Knowing how much you could possibly borrow makes the entire process far simpler.
“Most agents will show a client several houses before they decide on the one they really like. After the potential owner has decided, the agent goes about running all the necessary checks, including their credit record and what they could possibly afford,” explains de Waal. “By knowing exactly what you can afford before beginning your search you not only remove the risk of falling in love with a house you can’t afford but also improves the chance your agent can find you one you will like in your price range.”
Budget before you buy
As simple as this may sound it can truly save you in the long run, when thinking of buying a home take an honest look at your finances. Replace your monthly rent with the potential bond repayments, as well as costs like house insurance, rates and taxes, levies and property maintenance. All these costs add up and could put a strain on your monthly income.
Budgeting for other costs like the bond registration fee and transfer costs can also spiral out of control. Use something like Avid Firefly, an application that works out the possible costs involved in the purchase of your home. This will help you to apply at the right level, potentially avoiding the rejection of your application due to affordability concerns of your lender.
There are also plenty of personal budget apps out there, like Mobile2Budget, which makes controlling your finances so much simpler. Try one out for a few months to see exactly where your money is being spent, and what you can do to improve your financial situation right now, as well as affordability.
Top tip: Establish if you can qualify for a subsidy from the Government as a first-time home buyer under the FLISP initiative.
Working hard for your money
Getting a home loan is a difficult business and can be made even more challenging depending on how you’re employed. A full-time employee with a constant pay cheque is a far more attractive prospect for any lender than someone who is self-employed or commission-based.
If you are self-employed or work for commission contact a home loan consultant before you consider buying. There might be some serious red tape you need to get around and the last thing you want to do is lose out on your dream home because of delays with your bond approval.
Like anything in life, buying your first home will not only require careful planning and discipline, you’ll need to do some serious research so that you are armed with the knowledge to ask the right questions and demand direct answers