Competitive lending and stable interest rates, with the latest increase notwithstanding, make it the perfect opportunity for first-time homebuyers to embark on the journey to homeownership. However, the barrier to entry often lies in affordability and finances.
While we have noted a healthy increase in approval for zero-deposit (100% home loans) and cost-inclusive home loans, it’s always advised for homebuyers to get their financial affairs in order before applying for a home loan.
The time required to become financially prepared for a home loan varies from person to person. For some, it may take a matter of months, while for others it could take years. It generally depends on factors such as your credit score, existing debt and financial commitments, your employment status, savings, and ideally, a financial buffer for unforeseen circumstances and additional costs.
Ultimately, you want to enter into a home loan agreement in the strongest financial position possible. It’s all about financial wellness.
Lay the Groundwork for Your Application
Here are practical ways to help potential homebuyers achieve financial success:
1. Improve Your Credit Score
Your credit score is one of the first things that the banks will look at when deciding whether to approve your home loan. A credit score of 610 or more is required to qualify, and the higher the credit score, the better your chances are for approval. A healthy credit score can also help to secure a home loan at a lower interest rate.
2. Your Financial History Matters
Before approving a loan, banks also look at how potential homebuyers have managed their money in the past. Paying your accounts on time, paying more than the minimum instalment, and keeping your debt under control will help strengthen your application.
On the other hand, missing payments or applying for more credit before applying for a home loan can count against you. Luckily, future homebuyers can check and improve their credit score before applying for a loan using free online tools, such as bond and affordability calculators. Even small improvements can make a big difference.
3. Take Control of Your Debt
While income is important when applying for a home loan, banks also analyse the amount of debt a potential homebuyer already has. In general, you are in a better position of being approved by banks if your total debt repayments are in the 30% to 35% range of your monthly gross income.
It is recommended that homebuyers try to pay off as much debt as possible before applying for a home loan, especially high-interest debt like credit cards and personal loans. Reducing credit limits on credit cards and keeping your credit card balance below 30% of the total limit can also greatly boost your chances of approval.
4. Stabilise Your Employment
The banks want to see that the homebuyer’s income is stable and reliable before approving a home loan. For salaried employees, this usually means having at least six consecutive months with your current employer. Self-employed homebuyers are required to provide further supporting documents, including two years of financial statements and proof of consistent monthly income.
It is advisable to review all your income sources, ensure your tax returns are up to date, and work with a reliable accountant to prepare the necessary documentation before applying. Having your affairs in order can help strengthen your application and reduce unnecessary delays.
Incomplete or inconclusive paperwork puts your application at risk of getting rejected, especially for self-employed homebuyers. From the bank’s perspective, predictability reduces risk. The more stable your financial position appears, the stronger your application becomes.
5. Budget for a Deposit
While many South Africans still believe that a large deposit is required to secure a home loan, the good news is that zero-deposit lending has become increasingly common. Some banks may also offer cost-inclusive loans (up to 110% of the purchase price), which cover additional upfront costs like bond registration and transfer fees.
While this can make buying a home more affordable in the short-term, buyers should remember that borrowing more will increase the total amount repaid over time. For this reason, buyers who can put down even a small deposit or save for upfront costs may benefit from long-term savings, a better interest rate, and a more competitive purchase offer where multiple buyers are vying for the same property.
When it comes to the deposit, buyers are generally encouraged to save around 10% of the purchase price. Getting prequalified for a home loan can also help them understand what they may qualify for and what deposit target they should work towards. However, even if a deposit is not required, having savings in place remains imperative.
6. Prepare for Additional Costs
When it comes to purchasing a property, it’s important to remember that your home loan repayments are not the only costs involved. Homebuyers should budget for additional expenses such as transfer and bond registration costs.
The transfer fee is paid to the conveyancing attorney handling the transfer of ownership, while the bond registration fee covers the attorney registering the bond in the homebuyer’s name. Transfer duty may also apply to properties valued above R1.21 million.
Beyond these legal and administrative costs, homebuyers should also plan for moving expenses, insurance, repairs and maintenance, rates and levies, and utility installation costs.
7. Get Prequalified
Before you do house shopping, you need to know what you can afford and the home loan amount that you will realistically be approved for.
Being financially prepared to apply for a home loan extends beyond a budget and savings. Getting prequalified beforehand helps homebuyers get their documentation in order, boost their chances for approval, and be in a better position to negotiate when the time comes to apply.
Identifying potential red flags in your credit profile early helps you to proactively make important adjustments to move quickly when the right property becomes available.
Do You Qualify for a Government Housing Subsidy?
Many first-time buyers are unaware that they may qualify for the government’s First Home Finance subsidy (previously known as FLISP). This once-off subsidy is designed to help lower- to middle-income South Africans buy their first home.
To qualify, first-time homebuyers need to earn between R3 501 and R22 000 per month; be a South African citizen or permanent resident; and have financial dependents, be married or cohabitate. This is a great way to get into the market and secure your path to home-ownership.
Homeownership May Be Closer Than You Think
Homeownership is one of the biggest financial commitments most people will make in their lifetime, which is why careful and accurate preparation is so important. Being financially informed and ready makes the process smoother and strengthens your chances for approval.
Navigating this journey can feel complex, particularly when it comes to understanding affordability, comparing lending options and getting your documentation in order. This is where working with our experienced team can make a meaningful difference. We help homebuyers access the right tools, guidance, and bank relationships to start their journey to ownership confidence.
WRITTEN BY GAVIN LOMBERG
Gavin Lomberg is a chief executive in property finance
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.