Affordability is critical when applying for any form of loan.
Always we have to live within our means but sometimes because we want something so badly we end up spending more than we can afford. Well not in home loans as the banks came up with a strategy to make sure that this does not happen.
The banks, Standard bank, FNB, Nedbank, ABSA all use a ratio which they call the repayment to Income ratio (RTI). This is the percentage of a consumer's monthly gross income that goes toward payment of the bond or home loan and it is 30% maximum, or 30% of your monthly salary. I would say it’s better to find out how much you qualify for beforehand – before you waste your and the agents and everyone’s time only to find you do not qualify.
Let’s say you earn R15000.00 per month and want to know how much you qualify for?
Here is an affordability calculation for you;
Calculates the maximum bond you qualify for based on your monthly income
Date: 2011/04/11
Information Provided Calculated Results
Property use: PRIMARY / MAIN RESIDENCE
Interest/Base Home loan rate: 9.00 % Affordable loan: R 500,152.29
Monthly repayment: R 4,500.00
Customer rate: 9.000 %
Repayment-to-income ratio: 30.00 %
Gross monthly income: 15000.00
Net monthly income: 7000.00
Gross monthly expenses: 8000.00
Bond term: 240 months or 20.00 years
According to this calculation you do qualify for the bond of R 500,152.29 and remember you still need money for the transfer and registration fees as well as a bank initiation fee, so budget carefully.
However, let’s say for instance you did not qualify for the bond, what were the options?
The obvious one will be to look for a property within your range. It may happen that this is your dream home and you wouldn’t trade it for anything, then you can either look for a co-applicant to come in with you and jointly you qualify. You have to bear in mind that the co-applicant’s credit record should be good because even if it’s a co-applicant you will be declined if the credit record is bad.
If you don’t want them to be a co-owner on your property then they can have a family member stand surety. With surety ship, the one standing surety has to qualify for the bond on their own and the credit record or score has to be good according to the banks criteria. This is where we say terms and conditions of banks apply.
That is not all, Globalfundi have introduced a new product called the Home Starter Loan which is aimed at helping you get you dream house. This is a mortgage aligned loan which only a person with bond which has been granted can apply for and you can apply for up to R70,000.00 which you can use to pay the difference or to pay the attorneys fees. This could give you that elusive 100% loan you are looking for.
They say the beauty is in the eye of the beholder and I say today know what you afford so that you can experience the beauty of owning your property as it is all in your affordability.
L Your mortgage consultant
9 comments:
I love it and I think that the home starter loan from FNB is just what is needed. Lovely article
Nice post, but banks are slowly moving away for the 30% guideline. Mortgage decisions are based on a customer's affordability, profitability, relationship with the bank as well as the bank's risk appetite. I wish it was as square cut as 30% of income.
30% is exactly that a guidline - but the key in all of these is keep and maintain a healthy credit rating always but yes loans are there the banks try and force you to go to them versus using your own resources and originators who always help and go the extra mile often without reward..interesting
Great post.
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