Qualifying for a home loan - What you should prepare for

While the idea of homeownership is exciting, the process can be daunting, especially if you haven't taken out a home loan before. For those who haven't owned property before, there is also confusion surrounding the type of home you can afford and what documentation you need to provide.

Our quick guide should help you determine what to expect and how to prepare for your home loan application. 

 

 

Before you begin earnestly searching for a home, knowing how much you can afford is encouraged. Most banks offer pre-approval applications conducted online. During this process, the lender will complete a credit and affordability assessment to determine what you can afford to buy. Once completed, you will have a holistic summary of what you can afford to spend on a property, what your deposit requirements will be and how much you'll repay in monthly instalments over the term of the loan.

 

 

While the checks and analysis that lenders conduct on your application are intricate, the journey to getting a home loan or preapproval for a home loan isn't that complex as the applicant. Essentially, navigating the journey boils down to two critical processes: determining your readiness and preparing necessary documentation.

 

 

During the home loan process, lenders quantify your stability. Besides the required documentation, lenders examine your professional and personal circumstances. This means they'll want to determine that you - and any co-applicants - are in a permanent career and don't have extensive financial risks. Although you may only need to provide between three and six-month bank statements when applying, you need to be in your current position for at least six months if you are permanently employed. If you are self-employed, you need to be self-employed for two consecutive years. These requirements will extend to any co-applicants.

 

 

The success of your home loan application will be contingent on the information within the documentation you provide. Since lenders are undertaking long-term risk, they need to be certain you as a borrower don't pose a default risk when applying. The documentation you provide will be scrutinised. Essentially, the more thorough you are in providing information, the more accurate the result of your application will be. 

To help you prepare, we have listed some of the documents you need to prepare when submitting your application.

 

 

Whether you're applying online or through traditional methods, be sure to fill in every bit of information the lender requests of you.

 

 

 

If you earn commission, you will also need to provide a commission schedule from your employer.

 

 

 

A DEA consent form allows participating banks to get your bank statements directly from your bank so these documents cannot be forged.

 

 

This statement determines your debt-to-income ratio. Banks want to ascertain how much of your income is reserved for liabilities, as your bond will only add to your current debt burden, and lenders don't want you to overextend you.

 

 

This statement helps banks determine how much disposable income you have to pay toward a monthly home loan instalment. 

 

 

If you've already started the process of buying a home, you will need to provide a signed offer to purchase. 

 

 

One primary area of confusion for first-time home loan applicants is whether they'll be required to pay a deposit on the purchase price. Instead of relying on the bank, most deposit requirements will be determined by homeowners, as recent changes to banking permit borrowers to take out 100% home loans. However, some homeowners may place prerequisites on a deposit amount in the offer to purchase.

If you want to take out a 100% home loan, you should rely on the negotiating skills of your real estate agent. 

 

As trusted real estate agents along the Atlantic Seaboard, City Bowl, and Southern Suburbs, we've assisted many first-time buyers with the home loan application and work alongside trusted lenders to make the process as manageable as possible. If you're considering purchasing a home in Cape Town and need help navigating both the buying and home loan process, contact us.