If you’re thinking of buying a property, you should carefully examine your finances to ensure you’re financially prepared for this new commitment. In fact, your finances are so crucial that you should begin working on them long before you apply for a home loan. You’ll have more time if you need to improve your finances or credit score.
In this article, we got some fantastic insight from Bernard Cowley, who is a real estate agent with Fitzanne Estates, one of the leading estate agents in Pretoria, on ways to get your finances set to buy a home so you can be ready for the process.
Type of home and other considerations
You have the location and the neighbourhoods. But what kind of house do you want: a single-family home, a townhouse, or an apartment? Here are a few more things to think about.
- Condition — Is the house move-in ready or a fixer-upper? Consider your budget, whether you’re handy or despise the sight of a screwdriver, and how long you’re willing to wait to move in.
- Resale – If you intend to stay in your home for a shorter period, resale value will be more essential than if you intend to stay for an extended period of time.
- Other amenities include central air conditioning, a pool, a garage, granite countertops, hardwood floors, and walk-in closets. Have some fun determining what you can and cannot live without – as well as how much it will cost you.
Set a budget
Consider being preapproved for a home loan to determine how much you can afford. However, keep in mind that the lender is doing a purely mathematical calculation and is not taking your comfort level or preferences into account. Even if the lender says you can borrow more, be sure you’re happy with the amount you intend to borrow. Your bond payment isn’t the only expense you have to deal with.
In general, your monthly bond repayment should not be more than 30% of your gross monthly revenue.
Home Loan Pre-Qualification
Find out how to get pre-qualified for a home loan at your local bank. It removes some of the guesswork from your house search by giving you a good estimate of what you can afford. It is not a guarantee that your loan will be granted, since there are several property-related considerations that the bank takes into account, but at the very least, you can begin your home search in the appropriate price range. Sellers and realtors will also regard you as a serious buyer with the financial means to purchase the home.
Pre-qualification is the same as applying for a home loan. As a result, you must provide the bank with all necessary papers. Once your application is approved, you will receive a pre-qualification certificate that shows the home loan amount you have been pre-approved for.
Take stock of your credit scores and credit reports
It’s impossible to explain exactly how to improve your credit scores because everyone’s circumstance is unique, but there are a few techniques that can usually assist, especially if you implement them a year or more before applying for a bond.
- Apply for a credit card – If you don’t already have one, you should get one because it will help your credit score.
- Pay your bills on time – If you miss a payment on a credit card or another debt, your credit score will suffer.
- Use less of your available credit – Your credit usage ratio, which evaluates how much debt you’ve accumulated in comparison to what’s available to you, is an essential element in your credit scores. Using less than 30% of your available credit may improve your credit score. Paying down your obligations may also lower your debt-to-income ratio, which is used by banks to analyse your trustworthiness but has no effect on your credit scores.
- Delay opening new credit accounts – When you apply for credit, a lender will conduct a hard credit inquiry, which will have a brief negative impact on your credit ratings.
- Maintain a mix of credit accounts – Your credit scores are influenced by the kind of credit accounts you have, how long you’ve had them and how many you have. Lenders will consider you less risky if you can manage a variety of credit accounts without difficulty. It is important to note that you should not register new accounts only for the purpose of producing this mix.
If you have bad credit and stick to these strategies, your credit score will likely improve over time. If your credit improves, lenders may view you as a reduced risk and offer you a cheaper interest rate.
Save for your down payment: Bigger is better
You should save as much money as possible for a down payment. A larger down payment means you’ll own more of your new property right now. This increases your appeal to sellers, agents, and banks, and usually results in a cheaper interest rate on your home loan.
Why you should save for a deposit payment.
- A better probability of your bond being approved.
- With a smaller bond, the amount payable is reduced, allowing you to save on interest paid over the loan term.
- Your bond repayments will be reduced if you make a deposit. As a general rule, your monthly bond repayment should not exceed 30% of your gross monthly income.
- You are in a stronger position to negotiate an interest rate because the bank is less risky.
Can’t find what you’re looking for in your price range? One of the Fitzanne Estates estate agents in Pretoria can help you determine whether your wish list is realistic. If it’s not, you may need to compromise.
More about Fitzanne Estates
Fitzanne Estates (Pty) Ltd is a Property Management Company that can sufficiently administer your property investment to the benefit of the Landlord, the Body Corporate, and the NPC – Non-Profit Company. Services include Letting, Sectional Title Management, Full Title Management (NPC – Non-Profit Company) and Sales.
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