What should your credit score be when applying for a home loan?

We had a conversation with Ute Kock, home loan consultant at # Home Loans and trusted partner to Home and Hectare clients in Gqeberha, to discuss the current real estate market. Ute shared with us some important information that home buyers and sellers should keep in mind during this time.

What should your credit score be when applying for a home loan?

In South Africa, a good credit score is typically considered to be between 660 and 699, while a very good credit score is between 700 and 799, and an excellent credit score is above 800. However, the credit score required to be approved for a home loan can vary depending on the lender’s requirements and the specific home loan product being applied for.

In general, a higher credit score can increase the chances of being approved for a home loan and may also result in better interest rates and terms. However, lenders also consider other factors such as income, employment history, and existing debt when evaluating a home loan application.

It’s important to note that having a good credit score is not the only factor that determines whether a home loan application is approved or not. Lenders will also consider other factors such as the property value, the loan-to-value ratio, and the borrower’s ability to repay the loan.

You can request a free credit report from a credit bureau such as TransUnion or Experian to check your credit score and ensure that there are no errors or inaccuracies on your credit report that could affect your ability to obtain a home loan.

What do I need to apply for a new home loan as a self-employed person?

If you are self-employed and looking to apply for a home loan in South Africa, you will typically need to provide additional documentation and information compared to a salaried individual. Here are some of the documents and information you may need to provide:

1. Financial statements: You will need to provide financial statements for your business, including comparative financial statements, auditors letter confirming monthly drawings, List of personal Assets and Liabilities,. These financial statements should cover at least the past two/three years and should be prepared by a registered accountant/auditor.
2. Tax returns: You will need to provide your personal and business tax returns for the past two years. These returns should be up to date and submitted to the South African Revenue Service (SARS).
3. Bank statements: You will need to provide bank statements for your personal and business accounts for at least the past six months. This will help the lender assess your income and expenses and determine your ability to repay the loan.
4. Business registration documents: You will need to provide documents that prove the registration of your business, such as your business license, company registration certificate, or partnership agreement.

I am purchasing a home for the second time, do i need to also prequalify?

Just because you have a home loan for your current home, does not guarantee that you will get for a new home, so it is important to get pre-qualified before selling your home. Lenders will look at your financial situation afresh, and any changes –

Being pre-qualified for a new bond before selling your home in South Africa can also provide several benefits:

1. Confidence in your budget: By being pre-qualified for a new bond, you can get a clear idea of the amount you can afford to borrow and the terms of the loan. This can help you plan your budget and make informed decisions about the sale of your current home and the purchase of a new one.
2. Competitive advantage: In a competitive real estate market, being pre-qualified for a new bond can give you an advantage over other buyers who may not have financing in place. Sellers may be more likely to accept an offer from a pre-qualified buyer, as they know the buyer has the financial means to complete the sale.
3. Faster closing process: Being pre-qualified for a new bond can also speed up the home-buying process. Once you have found a new home, you will be in a position to make an offer and complete the sale more quickly, as you will already have your financing in place.
4. Negotiating power: When negotiating the sale of your current home, being pre-qualified for a new bond can give you negotiating power. You can use your pre-qualification to demonstrate to potential buyers that you are a serious seller who is ready to complete the sale quickly.

How can a bond originator/home loan consultant help me?

A bond originator can be a helpful resource for both existing home owners and first-time home buyers in South Africa. This Service to the client is FREE.

Here are some of the ways in which a bond originator can assist first-time home buyers:

1. Access to multiple lenders
2. Pre-qualification
3. Assistance with documentation
4. Negotiation
5. Bridging finance
6. Ongoing support

In summary, a bond originator can provide valuable assistance to first-time home buyers and those who have owned property before, working in South Africa and abroad as well as non residents. From access to multiple lenders and pre-qualification to assistance with documentation, negotiation, and ongoing support.