Applying For A First Time Home Loan
Category Property News
Want your first home loan application to be successful?
SA's major banks share advice
It's more than just a clear credit score that concerns local banks, as first-time homebuyers choose to invest in property instead of rent because of the historically low 7% interest rate.
Choosing to buy a property is a significant step. Each bank uses both the credit bureau score and their own internal risk assessment criteria, which looks at several factors specific to a particular home loan application. This includes the loan size compared to the property value, for example.
If you are classified as a very high-risk applicant, there is a possibility that you will not be able to qualify for a home loan. That is why it is essential to keep a good credit record and manage your expenses.
The credit bureaus specifically look at the following factors when calculating your credit record:
- Your debt repayment history
- Amounts owed
- Types of credit applied for and how often
- Length of time your accounts have been open
- How much of your available credit you are using
- Default history where you have not honored a debt obligation that resulted in a judgment against you
Potential home buyers should check their credit score before starting to look for homes or applying for a home loan.
Here's what SA's major banks have shared with Property24 concerning the influx of applications recently received and what First-time buyers should note if they want their applications to be successful.
ABSA
The activity in the market has increased significantly due to favorable interest rates and first-time homebuyer applications for 100% lending has increased in comparison to the previous year, says Ewald Kellerman, Chief Risk Officer: Home Loans, Absa Retail, and Business Bank.
"Over the last 6 months, 45% of our approvals have come from First-Time Homebuyers," Kellerman confirmed.
The credit score utilized by ABSA bank is mainly driven by internal and external historical payment behavior on accounts appearing under the customer's credit profile.
Kellerman says the bank specifically looks to see if applicants "have not maintained regular repayments, has opened multiple credit accounts over a short period of time or has over-extended credit facilities, the customer is likely to score low and not meet the bank's criteria in terms of the minimum score points".
ABSA does extend 100% lending to certain qualifying risk customers who are employed full time, but only within certain loan amounts. The has also not relaxed its deposit criteria.
"The deposit is set relative to the valuation of the property and the risk of the customer. Higher risk customers can expect to put down much more deposit towards the finance. There are no deposit criteria specifically for first-time buyers but it is encouraged for all property buyers to put down some deposit, irrespective of the grant amount from the bank.
"A healthy deposit may also assist to improve the customer's home loan price offered and will ensure there is positive equity in the property sooner, to unlock in times of need."
CAPITEC /SA HOMELOANS
SA Homeloans has had a long-standing partnership with Capitec as the facilitators of the bank's home loan offering.
The mortgage finance company says its advice to any applicant "would be to put down as big a deposit as possible, to reduce the interest payable over the term of the loan and to assist in qualifying for a better interest rate".
Capitec has also launched a new online home loan offering at the beginning of November, and SA Homeloans will continue to process the applications. Francois Viviers, Executive of Marketing and Communications at Capitec, says the offering was "developed in response to strong demand for a simple and efficient, digitally-led home loan option and offers applicants a competitive 6% interest rate.
SA Homeloans confirmed it does not detail first-time buyers' data. Applicants should note that Capitec's home loans are capped at R5 million over 30 years.
FNB
Year-to-date, applications volumes are approximately 9% above the same period in 2019 for First National Bank.
"We are however seeing a lag in approvals, lenders apply caution amid an uncertain economic outlook, only outpacing 2019 levels by approximately 1.5% year-to-date. In our view, activity is shored up by lower interest rates, attractive market pricing, lower transfer duties and the changing housing needs due to the pandemic," says Buyisile Maseko, Growth Head at FNB Home Finance.
Potential homeowners need to possess a credit record with no adverse listings when looking to qualify for mortgage finance," says Maseko.
"In addition to this, clients are required to have sufficient disposable income to service the prospective mortgage repayment as well as any new associated expenditures that come with owning a home. Clients need to consider this aspect when embarking on this significant decision of buying a home which for most clients will be their biggest asset.
Maseko's advice to first-time buyers is "to keep a good credit record and manage your expenses".
"As you start transacting with various banks, retailers and other financial institutions like lenders, you start building a financial history. Your credit history will be determined by the amount of money you have borrowed in your life and how much of it you have diligently paid back on time".
Maseko says FNB will allow bond costs to be capitalised into the home loan in select circumstances.
"FNB is committed to assisting first time home buyers and allows finance up to 100% that is assessed on a deal-by-deal basis. While it is still possible for a bank to grant clients a 100% home loan which does not require a deposit, we strongly encourage our first-time homebuyers to consider putting down a minimum deposit of at least 10% of the value of the property to ensure that their home loan repayments are reduced and more manageable."
Paying a deposit will also improve the client's chances of having your home loan application approved by the bank and will place them in a better position to negotiate a more favourable term. Also, when paying a deposit, the overall value of your loan will be smaller meaning that you will be able to pay it back sooner.
NEDBANK
Nedbank spokesperson, Mbali Khumalo says first-time homebuyers can qualify for a 100% home loan. However, this depends on the applicant's payment profiles and how they manage their debt.
"If managed correctly, it puts them in good standing with their credit providers, thus improving their overall profile and likelihood to be granted credit."
The bank was unable to share any data about its first-time buyers home applications.
STANDARD BANK
As part of Standard Bank's credit vetting process for a home loan, each application is looked at on a case by case basis.
Steven Barker, Head of PBB SA Lending Products previously detailed that "year-to-date application volumes at Standard Bank were up 23% YoY, with July 2020 showing an increase in approval rates from 54.19 to 55.89%".
"The increased rate is driven by the affordability by customers following multiple reductions in the repo rate. 54.88% average YTD are first-time buyers and applications approved YTD are up by some 16% YoY."
Standard Bank did not confirm requirements on home loan deposits or its approvals of 100% bonds.
Article courtesy of Property 24 (24 November 2020)
Author: Property 24