Owning a home is a significant milestone, and getting approved for a mortgage loan is often the first step in that journey. While the process can be exhilarating, it also comes with its fair share of challenges. Rejection, though disheartening, can be a valuable learning experience, helping you identify gaps in your application.
Drawing from personal and professional real estate experience, this guide is designed to equip you with actionable tips to increase your chances of getting a mortgage loan approved in South Africa. Whether you’re applying for personal use or as part of a business strategy, these insights will make the journey smoother.
1. Save for Transfer Costs and Deposits
While some banks offer 100% financing, covering additional costs like transfer fees and taxes yourself is wise. Property transfer costs typically range from 5–10% of the purchase price. Saving for these upfront expenses reduces the total interest burden on your loan, leaving you more financially flexible.
2. Choose the Right Property
The property you choose must meet the lender’s valuation criteria. Conduct thorough market research to ensure the asking price aligns with comparable properties in the area. An overpriced property can derail your application, so accurate valuation is critical.
3. Assess Your Monthly Budget
Mortgage repayments should ideally not exceed 30% of your gross income. Outline your monthly expenses to understand what you can realistically afford. Staying within this limit ensures financial stability and reduces the risk of defaulting on repayments.
4. Organise Your Paperwork
Incomplete or inaccurate documentation is a common reason for delays or rejections. Ensure you have:
- Personal Documents: ID copies, proof of residence, and 3 months’ payslips.
- Bank Statements: At least 3–6 months’ statements showing income and expenses.
- Tax Records: ITR12 or ITR14 forms for individuals or businesses.
- Other Documents: Offer-to-purchase agreements and proof of life insurance (if required).
5. Check and Improve Your Credit Score
Your credit score plays a significant role in loan approval. Aim for a score above 700 to strengthen your position and negotiate lower interest rates. Obtain your credit report (free once a year from bureaus like TransUnion) and address inaccuracies or outstanding debts promptly.
6. Maintain Stable Employment
Lenders prefer applicants with steady incomes. If you’re considering a career change or starting a business, delay the transition until after your loan is approved. Self-employed individuals need a minimum of two years’ financial history to qualify.
7. Minimise Existing Debt
A high debt-to-income ratio reduces your borrowing power. Pay off smaller debts where possible, and avoid taking on new credit before applying for a mortgage. This demonstrates financial discipline and improves your application’s chances.
8. Plan for a Down Payment
While not mandatory, offering a down payment lowers the principal amount, reduces interest, and increases approval chances. If you can’t pay upfront, consider saving for a lump-sum repayment later to offset interest costs.
9. Get Pre-Approved
A pre-approval helps gauge how much you can borrow and highlights potential hurdles in your application. This process involves sharing your income, expenses, and credit information with the lender, who then provides an estimate of your eligibility.
10. Stick to Your Budget
Even if a lender pre-approves a higher amount, resist the temptation to overextend. Opt for properties comfortably within your budget to avoid financial strain. Remember, repossessions often occur when homeowners overestimate their repayment capacity.
Final Thoughts
Securing a mortgage loan requires meticulous planning, financial discipline, and realistic expectations. Rejection, though disheartening, offers an opportunity to refine your approach. Whether it’s improving your credit score or revisiting your budget, every step brings you closer to achieving your homeownership goals.
By following these updated tips, you’ll be well-prepared to navigate the South African mortgage landscape confidently and responsibly.
