Buying a home is one of the most significant financial decisions you’ll make, and a home loan is likely necessary for turning your dream into reality. Navigating the world of home loans can feel overwhelming, with banks, interest rates, deposits and paperwork to consider. REALGLEN Properties has created this guide to simplify the process and explain everything you need to know.
In this guide, we’ll cover:
What home loans are and how they work in South Africa
How to get a home loan
How much you can borrow
Whether you need a deposit
The documents you’ll need to apply for a home loan
What are home loans and how do they work in South Africa?
For many South African families, a home loan is your ticket to homeownership and wealth generation over time. In short, a home loan is money that a bank lends you to buy a property. The loan is secured against the property itself, meaning that the bank has the legal right to repossess the property if you don’t manage to keep up with repayments.
A typical home loan has a duration of 20 years, although you can pay it off more quickly if you’re able to. Each monthly instalment includes both a portion of the capital amount borrowed and interest charged by the bank. The amount of interest you are charged will be linked to the prime lending rate, which means that your minimum repayments will rise or fall when the rate changes.
How do you get a home loan?
The easiest way to get a home loan is to apply through a bond originator like ooba or Betterbond. Your property practitioner will help you through the application process and the advantage of bond originators is that they will apply to all the banks on your behalf, and you’ll only have to fill in one set of paperwork.
When considering your application, the banks will assess your income, expenses, credit history and affordability before deciding how much they will lend you. If the first response you get isn’t favourable, don’t get too disheartened. Remember, by working with a bond originator, your application has gone to numerous banks and they all have different appetites for risk. If the first bank you hear back from says no, there’s still a great chance that another bank will help you make your property dreams a reality.
How much can you borrow?
The amount that you can borrow for a home loan will depend on several factors, including your income, monthly expenses, existing debt and credit history. The banks will conduct an affordability assessment to determine how much you can realistically pay every month without placing your finances under strain. They will also review your credit record to see how reliably you have managed previous debt. A strong credit score, stable employment and a manageable level of existing debt can increase the amount that you qualify for.
Do you need a deposit?
While you don’t necessarily need a deposit, it’s highly advantageous to have one. In some cases, the bank may give you a 100% home loan to buy the property of your dreams without a deposit. You’ll be more likely to be granted a 100% bond if you have a strong credit record, stable income and good overall financial standing.
However, offering a deposit will increase your chances of being approved and is likely to help you secure a better interest rate. A deposit reduces the amount that the bank needs to lend you, which lowers its risk and shows that you have the financial discipline to save. The other big advantage of a deposit is that the less you have to borrow, the lower your monthly repayments will be.
Documents you’ll need to apply for a home loan
When you sign an offer to purchase for your dream home, you’ll need to start the home loan application process almost immediately — so it’s worth having the necessary paperwork together so that there are no surprises. You’ll need several documents that verify your identity, income and financial stability. These include the following:
- A copy of your South African ID or passport
- Three to six months of bank statements and payslips
- If you’re self-employed, you’ll need financial statements and tax returns instead of payslips
- Proof of residence (such as a utility statement, bank statement or affidavit)
Securing a home loan may seem complicated at first, but once you understand the process and know what your borrowing options are, it’s far less daunting. If you need help navigating the home loan process confidently, get in touch with the REALGLEN Properties team. We’ve been doing this for decades and we’re here to help.
