So you are planning to buy a new home? What, you may well ask, is involved in the apparently complicated system of acquiring a home loan? Although today there are probably more requirements than ever before, the process has become that much easier for the prospective buyer simply because estate agents, bank consultants and conveyancers are generally very willing to do much of the paperwork for you. You can virtually obtain a home loan from home!
Applying for a New Home Loan In times past the system was very simple. If you wanted a bond on your new property, you would first have to go down to your local bank, make an appointment with a staff member from the bank's loan department, take home the application form and fill it in before returning it with all the other documents that the bank wanted. You would then have waited patiently for a successful conclusion. Today banks employ loan consultants who are very mobile, constantly visiting estate agencies, trained in home loan requirements, and who will be willing to advise you of all you need to get your loan granted. Even your estate agent will probably be willing to make the application for you and assist you in getting your necessary documentation together. You need only pick up the phone.
Your loan consultant will be able to tell you of all the different options your bank can offer you, in particular the important question of interest rate choices. Each bank has a wide range of alternatives, some even offering interest only repayments and special deals such as unit- trust linked investments. The application form has to be completed very accurately but your estate agent will be able to fill in the necessary technical information, especially the details of the property you are purchasing. Shortly after your application has been processed you will be advised if your loan has been granted. One of the bank's building inspectors will go out to the property first to ensure that the bank finds sufficient equity and value for your loan.
Quite a number of supplementary documents are required to back up your application. A copy of the front page of your identity document will be requested so that the bank can be sure it has your personal details correct. If you are married a copy of your marriage certificate
will be called for and, if married out of community of property, a copy of your Antenuptial Contract. Likewise, if you are divorced, a copy of the divorce order will be needed. All this is to ensure that your property transfer and bond correctly reflect your personal details and current marital status. If you are not a South African citizen you will need to provide proof that you are entitled to purchase a property in the country. If you have permanent residence, this will be stamped in your passport. All permanent residents are entitled to identity documents and if you have one, nothing further will be required. Even if you are not a permanent resident you can still purchase property if you have a temporary work permit stamped in your passport (which automatically entitles you to temporary residence). As long as you sign the sale agreement during the period for which your permit is valid you will be entitled to a home loan. Obviously your bank will want to know if you intend staying on in South Africa and whether you will be able to repay the loan during its full allotted period (usually twenty years). If you do not wish to use your bank's personal life assurance facilities you can provide proof of alternative policies you have to ensure the bond will be settled in full if you should pass away while the bond is still being paid off.
Special cases require special treatment. If you plan to register a Close Corporation or Family Trust and want your loan granted in its name you will have to get these registered first and as soon as possible. Both can be done at a reasonable cost through your conveyancer and can be registered within two weeks. Once again you need not do all the running around your representatives (conveyancer, estate agent or loan consultant) will assist you to get the necessary documentation sorted out. It is important to know that your bank will not grant your loan in such cases unless it first has a copy of your registered Founding Statement (for a CC) or Letter of Authority (for a Trust). If you have to sign as surety for your CC or Trust (which your bank will most certainly require), or if some other suretyship is required, the surety document will be drawn by the bank's conveyancer who will get you to sign it with your bond documents. If you work for a Government Department or company from which the bank requires collateral security, you will have to personally arrange this yourself.
Once your loan has been approved your bank will instruct its conveyancers to draw the necessary bond documents for registration. Very often it will be the same attorneys who are doing the transfer. Virtually all the required documentation will be signed when you visit their offices. Only one appointment should be sufficient to get everything signed provided you are informed of your bond registration costs when the appointment is made. You should ask for a copy of the statement of the attorneys charges to be faxed to you so that you can know in advance what specific costs are due. You should also make sure you pay the costs when you call, otherwise any delay in paying is likely to protract the transfer and you will have the conveyancer, estate agent and seller constantly on your back.
If it is extremely inconvenient for you to call and sign during office hours the bank's attorneys may be willing to make alternative arrangements. Some conveyancers (property lawyers who are specially qualified attorneys) will be prepared to see you on a Saturday morning and, if they are really client conscious, may even be willing to see you at home in the evening. You will be required to sign a Power of Attorney with the bond document attached, a Debit Order to secure your monthly repayments (a mandatory requirement by most banks these days), authority to pay forms which will authorize the bank to disburse the amount of the loan (usually to the Seller's bank to clear his existing loan with the balance going to the transfer attorneys), the bank's standard mortgage loan agreement, any specific conditions of loan it may have as well as any other required documents such as insurance applications and suretyships.
The various documents that are full of terms and conditions may appear imposing and threatening but actually they are standard forms used by all banks throughout South Africa and, as long as youpay your monthly loan instalments each month, you will have nothing to fear. With Sectional Title bonds a special insurance certificate from the body corporate of the complex will be required (or its managing agents) confirming your unit is properly insured. Your conveyancer will normally be able to arrange this for you directly. Although there is much to be done before a new home loan can be registered most of the procedures will be resolved either by your bank's loan staff, its attorneys, or your estate agent. Provided you cooperate the system should flow freely and fairly simply to registration and you will soon be the proud owner of your new home.
You and your wife are buying a home, what home loan should you consider? We've given you an equation to work it out. Very simply, the major banks will give you up to twenty times your combined monthly salary.
What else should you consider? Keep an eye on these important factors:
1. Future interest rate increases
The vast majority of bond foreclosures occur during times when interest rates are high and monthly installments become unmanageable. Very few families can pay more than 25% of their monthly income on bond repayments. That's why banks put their lid on at this percentage. Consider taking a loan for less than you can presently afford, you may come to be grateful you did!
2. Possible salary reductions
Most people's salaries don't decrease but if you're self-employed, work on a commission basis or have any other form of uncertain income, make allowance for a possible downturn in the future. Will your wife continue working for the next ten years? If not, allow for the future loss of monthly income. Give yourselves some breathing-space.
3. Increased future expenses
Another good reason for taking a home loan for less than you can presently afford. It may be your child's future university education, repairs to your home, higher levies or rates, and other similar burdens. Some foresight and wisdom now will hold you in good stead at any future time when your spending power may be less than it is now.
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