Home Loan Readiness

You are tired of paying rent and want a place of your own. Maybe family is asking when you will buy. Before you fall in love with a house, it helps to know whether a bank is likely to say yes, and whether the monthly cost will leave you room to breathe.

What is happening

When you apply for a home loan (a bond), the bank looks at four main things. Your income and affordability: banks often want the bond instalment to be no more than about 30% of your gross household income, after checking your other debts and living costs. Your credit record: arrears, judgments or a debt review flag make approval difficult. Your employment: a permanent job past probation helps, while self-employed people usually need two years of financial statements. Your deposit: some banks offer 100% bonds to first-time buyers, but a deposit of 10% or more often means a better interest rate and a lower instalment.

Buying also comes with upfront costs beyond the deposit. These include transfer costs and bond registration costs (attorney fees and deeds office fees), possibly transfer duty depending on the price, moving costs, and connection fees. Once you own, you pay rates and taxes, building insurance, maintenance and, in complexes, levies.

A bond originator can apply to several banks for you at once, usually at no cost to you. Some households may qualify for a government-backed subsidy for first-time buyers. Getting pre-approval before you house-hunt tells you your real budget.

Signs to notice

• You have a stable income and have been in your job for a while.
• Your debt repayments are well under a third of your take-home pay.
• You have savings for costs, not only a deposit.
• You have checked your credit report recently.
• You plan to stay in the same area for at least five years.

30-second self-check

Answer yes or no.

• Have you been in your current job for more than a year, or self-employed with two years of statements?
• Is your credit record free of arrears and judgments?
• Do you have savings for a deposit and transfer costs?
• Would the bond, rates, insurance and maintenance fit in your budget with money left over?
• Do you have an emergency fund separate from your deposit?
• Do you plan to stay in the area for five years or more?

0-1 yes: You are probably not ready yet. Focus on your credit record and savings first, and check again in six to twelve months.
2-3 yes: You are getting close. Work on the gaps and get a pre-approval to see where you stand.
4 or more yes: You look ready to start the process. Get pre-approved, and budget for all the costs of owning, not only the bond.

What you can do next

• Today: Get your free credit report and check it for errors or arrears.
• This week: Add up your current debts and living costs. Use the calculator to see the bond you could manage while still saving.
• This month: Save for costs and an emergency fund. When ready, ask a bond originator or your bank for pre-approval.
• Get building and home contents insurance quotes before you buy. Your bond may require building cover.

Your tool

Bond Readiness Score - answer questions on income, credit, savings and stability to get a readiness score, an estimated affordable bond range and the steps to improve your chances.

When to get professional help

Speak to a registered adviser if you are unsure about affordability, and to a conveyancing attorney about transfer and bond costs. Buying a home is exciting, but it can also bring pressure from family and fear of getting it wrong, and it helps to talk that through.
Who can help: FSCA-authorised financial planner, money coach, conveyancing attorney, FSCA-authorised insurance adviser

Getting help in South Africa

SARS (sars.gov.za) publishes current transfer duty rates. The National Housing Finance Corporation administers the government-backed First Home Finance subsidy for qualifying first-time buyers; check the current income limits. The National Credit Regulator (ncr.org.za) handles complaints about lenders. Your Cleared Mind EAP can connect you with a money coach to prepare your budget.