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Why a Home Loan Prequalification Matters

So you’ve been looking to buy your dream home, and you’ve seen something for sale that grabs your fancy.

Now imagine yourself walking through the front door carrying a suitcase filled with cash. You’ll certainly get the buyer’s attention, won’t you? Of course, not many people are in the fortunate position of being able to pay cash for a property—but being prequalified for your home loan is the next best thing.

What does it actually mean to be prequalified for a home loan, and does this process put you under any legal or financial obligations? The short answer is no. Unlike a promissory note—also known as a loan agreement—a prequalification doesn’t require any financial commitment on your part.

However, this does not mean that you should set an unrealistic expectation of what your prequalification amount might be. Simply put, you wouldn’t walk into a store to purchase an item that you unequivocally could not afford. So why would you shop outside of your price range when buying a home?

A prequalification is a clear indicator of what you can afford, and what your credit rating is. These two indicators are essential when purchasing a home. The bank will only approve you for an amount that you can afford to repay each month, and a bad credit rating (under 600) will not be accepted.

According to recent statistics, 8.4% of home loan applications are declined due to poor credit scores, and 7.7% due to affordability.

Do your homework

Buying a home is an emotional and lengthy process. In addition to behind-the-scenes research and viewings, one needs to consider the process of putting in an Offer to Purchase, which—if accepted—is legally binding. This paperwork takes time, and requires input from the buyer, the seller, and the agent.

Without a prequalification, there is a chance that the offer will be rejected—and that all the work would be done in vain. Also, keep in mind that if you have been rejected by the banks, you will need to wait three months before reapplying for a home loan.

What a prequalification entails

A prequalification can be easily undertaken online, and acts as an estimate of what you can afford as it is based on your monthly earnings, expenses, and any debts that you may have. The certificate is valid for 90 days.

While this step won’t 100% guarantee that you will be approved by the banks, a prequalification is an easy way to determine the price category that you can shop around in. Conversely, if a prequalification is denied, it helps prospective homebuyers to be more realistic and to end the process before sinking any money or time into an application.

Does a prequalification give you an edge?

It certainly does, and the reasons as follows:

  • Shopping with confidence: Knowing your credit score gives you the opportunity to address any issues before putting in an offer. A prequalification also gives you a pretty accurate picture of what you can actually afford.
  • Standing out from the crowd: Sellers are more likely to accept an offer from someone who has a prequalification. This acts as proof that you can afford what you’re buying, and the likelihood that you will be approved by the banks. In a bidding war, a prequalification will help you to stand out.
  • Avoiding disappointment: A prequalification protects you from putting in an offer on a property that you can’t afford, and will ten to one be turned down for.

 

WRITTEN BY RHYS DYER

Rhys Dyer is a real estate specialist.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither 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.

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Jan Fourie

Director |  Attorney, Notary & Conveyancer | BA. LLB

Jan graduated in 1974 with a five-year BA LLB degree from the University of Stellenbosch, whereafter he was admitted as an advocate and prosecuted as such in the Cape Town and Wynberg Courts. In 1974, he joined Swemmer & Levin as the Candidate Attorney of Mr Levin (founding member) and was admitted as an attorney on 7 April 1976, as a conveyancer on 11 January 1978, and as a Notary on 19 December 1984. Since 1974, he has served in various committees, including the West Coast Chamber of Commerce, the Vredenburg School Committee, and the Malgas Lions Club. 

Furthermore, Jan was the author of the first bilingual law book, The New Debt Collecting Procedures (Die Nuwe Skuldinvorderingsprosedures), which was used by all the Magistrate Courts throughout South Africa. With the founding of the Small Claims Court in Vredenburg, Jan served as one of the first Commissioners. He is currently based at Swemmer & Levin’s Vredenburg office and has been with our firm for more than 47 years.

Pieter Smit

Director | Attorney & Conveyancer | BA. LLB

Pieter obtained his BA Law degree from Stellenbosch University in 1995 and his LLB degree from the North-West University in Potchefstroom in 1998. He served his articles at Marais Muller Attorneys from 1998 to 1999 and was admitted as an attorney in 2000 and as a conveyancer in 2002. Pieter is the founder of PP Smit Attorneys, which opened its doors in 2004. He also became a director of Swemmer & Levin in 2006. Pieter loves the outdoors and participating in all forms of sport, including tennis, golf, fishing, spearfishing, scuba diving, and hiking. 

Johann Maree

Director | Attorney | BA. LLB

Johann matriculated at Oudtshoorn High School and attended Stellenbosch University, where he obtained his BA Law and LLB degrees. Following his studies, he worked for three years as State Prosecutor at the Magistrate’s Court in Cape Town. Johann completed his legal training with the State Attorney in Pretoria and then moved to his hometown, Oudtshoorn, where he worked as a lawyer for a year. In 1983, he finally moved to Vredenburg and joined Swemmer & Levin, where he is still practising as a director. When he is not in the office, Johann enjoys cycling and in his earlier days, he used to be a long-distance junkie.

Richard Phillips

Director | Attorney | Bcom & BProc

After matriculating at Paarl Boys’ High School, Richard completed his BCom and BProc degrees at the University of Port Elizabeth. He served his articles with Van Wyk Fouchee in Paarl and quickly developed an affinity for litigation. Richard has always had a deep love for the ocean and when he was presented with an opportunity to join Swemmer & Levin on the West Coast, he agreed without hesitation and has been with our firm since 1997. Richard specialises in general litigation and divorces. When he is not in the office or with his family, he tries to spend as much time as possible in or on the water.

Jandré Smith

Director | Attorney | LLB

Jandré grew up and matriculated in the small Klein Karoo town of Oudtshoorn. He furthered his studies at the North-West University in Potchefstroom, obtaining his LLB degree during 2015. He completed his articles at Swemmer & Levin in 2017 and was subsequently appointed as a professional assistant. In 2020, Jandré was promoted to the position of director at the firm, where he practises in the Litigation department at our Langebaan office. When not practising law, Jandré is an avid sports fan. He has a passion for nature and enjoys camping, trail running, and mountain biking with his family.

Andre van der Walt

Director | Attorney | LLB

Andre graduated in 2015 with an LLB degree from the University of Pretoria. He later went on to obtain his NQF 7 Certificate in the Administration of Deceased Estates from the University of South Africa, which allowed him to further his career in deceased estates and the drafting of wills and trusts. Andre served his articles at Barnard & Patel Attorneys under the supervision of Mr YAS Patel. After being admitted as an attorney in 2016, he continued working at Barnard & Patel Attorneys as a professional assistant in the deceased estates department.

Andre joined Van Rensburg Attorneys in 2019 and was head of the deceased estates department until 2021. He then received the opportunity to move to the West Coast, where he joined Swemmer & Levin Attorneys. Andre loves travelling and enjoys the beauty that our country has to offer with his friends, family, and loved ones.

Harmann Potgieter

Attorney | LLB

Harmann graduated in 2018 with an LLB degree from the North-West University’s Potchefstroom Campus. He went on to study and grow in various fields, including doing a course on the Consumer Protection Act and a course at the University of South Africa where he obtained his NQF 7 Certificate in the Administration of Deceased Estates.

Harmann completed his articles of clerkship at Swemmer & Levin under the supervision of Mr Richard Phillips. After being admitted as an attorney in 2020, Harmann continued with Swemmer & Levin as a professional assistant in the deceased estates department as well as the litigation department. He loves to study, possesses a deep curiosity about the world, and is dedicated to giving back to the community.

 

Carla Cloete

 

Director | Attorney, Conveyancer & Notary | LLB  

Carla obtained her LLB at the North West University, Potchefstroom Campus in 2015. She completed her articles in 2017 with Brits Dreyer Inc in Bellville. She is an admitted Attorney, Notary and Conveyancer. After her articles she relocated to Kimberley where she worked as a professional assistant in the Conveyancing department of Van de Wall Inc. Coming back to her Western Cape roots, she now joins the Swemmer & Levin team as a professional assistant.