When you purchase a house for the first time and apply for a home loan, you’re sure to feel nervous. There are so many factors to consider: what paperwork are required, how long will it take, and should the house loan be in your name or someone else’s? All of that can leave you feeling discouraged. With the tips we’re about to share about how to qualify for a home loan in South Africa, you’ll be able to start the process with confidence.
How does home loans work in South Africa
Basically, it’s a loan given to you by a lender, where a security interest in the home you are buying is put up to guarantee repayment if you can’t make it.
As soon as your bond is registered, the home loan provider will keep the title deed to your property until your home loan is paid off in full. As long as your home loan is not fully repaid, your home remains the property of the home loan provider.
The principal factors in your loan repayment are how much you borrow and how long it takes to repay it. Generally, you must pay back the home loan plus interest over a set period of time, most commonly between 20 and 30 years.
The interest rate on your bond is determined by the South African Reserve Bank (SARB). The amount of your installments will vary as the interest rate increases or decreases. During the first few years, most of your loan repayments will be used to pay off the interest. Over time, your repayments will go toward paying off the actual loan amount.
How do I know if I can qualify for a home loan
Obviously, you need a good track record when it comes to managing credit before a bank will consider granting you a home loan. In order to qualify, you must demonstrate that you pay your debts on time and in full.
For eligibility, you need to be 18 or older, employed for six consecutive months, or self-employed for two years.
Here are our top six tips for guiding you on the documentation requirements for the application itself:
- You must provide your most recent pay stub as proof of income. It is possible that some institutions will ask for the last three salary advices, especially if you earn commission or overtime. If you live in a community of property (COP), your spouse must also provide the same.
- You should have the last three months’ bank statements for both your personal account and your partner’s account, if applicable.
- You need to provide a copy of your South African ID document (and your partner’s if applicable).
- The bank will require you to provide a statement of your monthly income and expenses, including your monthly debt repayments and living expenses.
- The bank will ask for a personal assets and liabilities statement.
- You’ll also need to hand over a copy of the purchase agreement.
What credit score is needed to buy a house in South Africa
In South Africa, a credit score of 640 is required for a house loan. A credit score of 600 or above will offer you a good chance of getting a house loan. However, this may vary depending on which bank you choose. A credit score of 670 or more is regarded as outstanding, significantly increasing your chances of getting a house loan.
How much deposit do I need to buy a house in South Africa
In most circumstances, purchasing a property will need a deposit of between 10% and 20% of the purchase price. Once you’ve applied for a house loan and been approved, the rest will be paid by the lender.
Best bank for a home loan in South Africa
The ever-available credit service South Africa enjoys through different finance bodies is something to be grateful for. However, to enjoy these advantages, it is important to know which service providers are available. The following is a list of 5 credit providers that can be turned off;
1. Capitec loans.
A member of the JSE, Capitec Bank is one of Africa’s leading financial services providers. Committing a great percentage of their resources on finding local solutions to uniquely local challenges. A real entrepreneurial spirit motivates them in their quest to improve the lives of Africans.
To this end, the Capitec loan offers a wide range of retail, business, and corporate loans, most especially home loans.
2. FNB loans.
In South Africa, FNB is the oldest bank, having been established in 1838 as the Eastern Province Bank in Grahamstown. Two features, in particular, stand out on the FNB platform. The first is a story of survival; different circumstances in South Africa have posed many great challenges in our history, all of which FNB has successfully met.
Aside from the fact that they have high-grade loan products, they also have some of the best terms for home loans.
3. Sentinel homes.
This is another great option for prospective homeowners. Sentinel Homes is an alternative home financier to banks and other home loan providers serving the Western Cape and Gauteng areas. They are the first South African company to offer an alternative to bond finance in the open market.
The company is the brainchild of the team at Combined Finance, which has been operating as investors and financiers in the real estate industry since 2013.
4. Ned Banks.
Ned bank is one of South Africa’s four largest banks. Whether you’re buying, building or switching your home, Ned bank home loan is available to assist you and help you take each step in your property journey with confidence. Their goal is to ensure that you can return to your dream property every day.
5. Standard bank home loan.
Standard bank is a deeply rooted financial service provider. A home loan from Standard bank can provide you with a range of flexible options to help you make your next big move. Whether you plan on becoming a homeowner, a home builder, or are already a homeowner. Their differentiator is their long-term efficiency and commitment to Africa.
How many home loans can you have
Multiple home equity loans are possible if you own equity in your home. Regardless of whether you get another home equity loan on the same house or multiple home equity loans on different homes, you need to understand that your creditworthiness plays a role in your approval.
Home loans can be helpful for certain situations and can be a creative solution for borrowers. Especially those who may have difficulty borrowing or simply need the flexibility of private lending offers. Weigh the risks to rewards before entering a private agreement and seek professional help for guidance as needed.