Getting approved for a mortgage loan can be very blissful. I remember when I got my first approval for a mortgage loan, I was in delirium. This meant a cancellation of rent expenses. A warm welcome to mortgage instalments.
Though it may be different for you, getting a mortgage loan approved is fulfilling whether it’s personal or business while rejection can be a terrible experience! If you have been rejected for a mortgage loan it means you got certain aspects of your application wrong.
I will use my past and business experience to outline each and every tip that you need to know so that your mortgage loan can be approved.
Real Estate investing is my forte having started the trade in my early 30s. I didn’t go about it taking chances. Maybe it was because I was wiser(maybe not) and mature hence I didn’t have the luxury of snoozing.
I read a lot of books before I started investing in real estate to make sure I consumed sufficient knowledge. I also started following real estate trendsetters.
While doing my research I came across a book penned by one of my favourite authors, Brandon Turner titled; The book on investing in real estate with no and low money down. It made me think simple and smart.
Although the content and context are American, it is still applicable to South African real estate investors. Most of my real estate strategies come from this book and have worked most of the time
There is no absolute answer to investing in real estate but what you need is a strategy that works for you. I have made my share of losses in the real estate market and I have made more gains from the market, it is gambling with very low risk.
If you took a mortgage loan just 3 months before the 2008 economic crisis, your property would have decreased in value by 16% by the fall of 2008. Is this a bad investment? Only if you are not intending to hold the property long then it’s a bad investment.
The reason I’m touching on real estate investing is that it is connected to you getting that mortgage loan. You need to understand the reason why you are taking a mortgage loan, whether it’s for business, personal or other, you need to do your homework.
Understand the future value of your mortgage implications, if you are taking a mortgage loan of R15, 000,000.00 today and paying R32, 000,000.00 over a 20 year period, what will the true future value of the mortgage be? There are many things to consider when evaluating your return on investment and these are things that you need to calculate.
A mortgage loan should be meaningful and must make business sense. For starters, you will have to make mortgage loan comparisons, going to different banks and negotiating for low interest is advisable. After going through all the stress of investigating the property that you want to buy, the location of the property, negotiating interest rates and your return on investment you still need to get that mortgage loan approved.
I have listed 10 tips that you can use to assist you in getting your mortgage loan approved in South Africa. These tips will come in handy if you use them as-is, whether as a combination or singular depending on your situation.
Here are 10 tips that you can use to get a mortgage loan approved in South Africa
Saving money is the first step that you need to take. Your mortgage transfer will include costs so it’s better to save for those or even for a down payment.
Banks finance mortgage in full and even offer to pay transfer fees and taxes but that doesn’t mean you can’t pay them yourself. It’s good to start paying for your mortgage loan instead of other costs such as transfer fees.
These tend to increase interest on your loan. Taxes and property transfer costs cost about 5% of the purchase price so save up for them to save on charges.
You need to choose the property that you want to buy. The lender will need to make sure that the property you are buying is worth the purchasing amount.
You need to be very careful when choosing which property to buy because it has to match the stated value on the property otherwise the lender will disqualify you for a loan.
Check similar properties in the area you want to buy the property and make your comparisons.
Your finances are a partial determinant of your loan approval and must be in order.
You need to outline your monthly expenses and while doing so you need to be objective. This will help you determine how much you will be left with every month before your loan instalment is due.
Create a mortgage budget, note that your mortgage budget should not be more than 30% of your gross income. If your mortgage budget is more than 30% of your gross income it means you can not afford the property you are planning to buy.
Stick to 30% or lower when creating your mortgage budget to ensure that you will be able to afford to repay your mortgage loan. Your gross income should be the income of all your earnings from South Africa and around the world.
The reason why mortgage approvals and property transfer take so much time to complete is that applicants do not present sufficient paperwork.
Your paperwork must be in order before you apply for a mortgage loan. Paperwork needed for your mortgage application include:
3 months bank statement showing proof of income.
It is advisable to prepare a 6 months bank statement instead of 3 months, especially for a business entity.
3 months payslips and must be current for individuals. For businesses, you must have 2 years of financial statements reviewed or audited.
ITR12 from SARS for the past tax year for individuals and ITR14 from
SARS for the past 2 years for companies.
Proof of residence bearing the name of the applicant.
ID copies of the applicant(s). For a company, copies of Directors ID or passport.
If you have life insurance then you can produce police documents.
An offer to purchase agreement these documents must be readily available before starting your mortgage loan application to fast track the application process.
If you are paid R100, 000.00 a month and have sufficient documents proving that indeed you earn so much. But you have a bad credit score, you won’t get a mortgage loan.
You need to get access to your credit report before applying for your mortgage loan. Whether as an individual or business you can use Experian or Transunion to access your credit report. You can access a free credit report once a year and after that, you can pay for the next report.
Go through your credit report with scrutiny and check all the things that you are doing wrong. If there is anything that you feel is wrong on your credit report like credit request that you never authorized. Lodge a claim that the request is false.
On your credit report, there are suggestions of the things you can do to improve your credit score. Check your credit score. If it is good then you are good to move to the next phase of acquiring your mortgage loan.
If bad, then wait and correct things that need correction on your credit profile. A good credit score is one that is in excess of 700. With a good credit score, you can negotiate for a reduced interest rate.
You need to stay employed. If you are planning to leave your job to become self-employed then do it later. After your bond has been approved. If you are self-employed, you will have to operate for 2 plus years to qualify for a mortgage loan.
You are better off employed at another company than switching your daily job for self-employment. Keeping your job means no change in income. Lenders find this easy to calculate and to predict your future earnings. Unlike being self-employed where you will need to start from scratch.
You can still have your credit cards open but you need to minimize your debt. Having open debt doesn’t disqualify you from getting a mortgage loan but your debt to income ratio might.
Keeping your credit at a minimum is ideal and will decrease your debt to income ratio. What you need to avoid is to take additional credit as it may disadvantage you.
It is not mandatory to make a down payment but if you have money to make a down payment, you can save in interest charged and pay less.
Alternatively, calculate if you can pay-out a lump sum in the future so you know how much can you save. Paying a lump sum can be ideal if you save money on a compound interest savings account. In the process you will be slashing some of the interests that you need to pay for your home loan.
Some mortgage loans provide fixed interest. Over time, you have a saving account with compound interest that can match the amount of interest you need to pay on your mortgage.
The next step of the jigsaw puzzle is to apply for a pre-approval. A pre-approval gives you a hypothesis of what the lender’s decision will be should you apply for the loan.
A pre-qualification is easy to do. You will be asked questions like how much do you earn, what is your credit score, how much are your expenses. Monthly property taxes, monthly property insurance, and how much you want to pay for a down payment.
Your information will be accessed and then results will be displayed on whether you qualify for the type of property you want. This is a safe method to use so that if you get negative results you go back to the drawing board and check what you are doing wrong and find solutions to the problem.
After going through all this, you will know what you can afford. Go for what you can afford or even less to increase your chances of getting approved.
Sometimes the lender will tell you what you can afford. It could be way above your budget. So don’t get tempted because you don’t want to end up not having the property in the end.
Lenders may not know your budget so it’s easy for them to give you an option for a higher mortgage loan. If you know your budget, simply stay within it.
If a lender disapproves of your mortgage loan application, don’t get discouraged because the lender is doing you a favour. You will have a chance to do things the right way. Such as managing your credit and keeping a good credit score.
Many properties are getting repossessed every year so don’t overestimate your earnings and take a loan that you cannot afford. They say ‘if you can’t buy it twice, then you can’t afford it’. However, I say if you can’t buy it thrice then you can’t afford it.