With most of the major interest rate hikes now out of the way, 2023 is set to provide a more stable environment for financially-savvy, would-be homebuyers to enter the property market. 

While the economic outlook is set to be less turbulent than during the previous year, it’s still vitally important to take charge of your spending and prioritise assets that will pay off in the long run. Rhys Dyer, CEO of ooba Home Loans explains: “While some South Africans are opting to rent, our statistics indicate that there is still strong demand for homebuying among both first and second-time buyers due to the competitive lending environment.”

Where to start

Before starting the process of shopping around and applying for a home loan, Dyer believes that potential homebuyers should have a clear understanding of what they can realistically afford. “There are free tools online such as ooba’s Bond Indicator that allows you to check your credit score, see what you can afford and provides you with a prequalification certificate which is valid for 90 days.”

“The general rule of thumb is that a monthly home loan repayment should not exceed 30% of your monthly salary.”

More than just a piece of paper, a prequalification certificate plays a vital role in boosting your chances of receiving preferential interest rates as it ‘primes your financial profile’ prior to applying.

“Once this step is completed, it’s time to talk budgeting and saving.” says Dyer. “It’s important that you budget accordingly, preparing yourself for the added costs associated with homeownership, including: 1) the cost of registering your bond, 2) transferring the property into your name and 3) paying the transfer duty on your new home (applicable to properties over R1 million).” 

And while banks continue to approve 100% home loans, buyer demand for zero-deposit loans has dropped by 7% from Q4 ’21 to 57% of applications in Q4 ’22.  “We recommend that buyers factor in a deposit of around 10%.”

For first-time South African homebuyers earning a single or joint gross monthly household income of between R3 501 and R22 000, there is also a good chance that you can qualify for the Finance Linked Individual Subsidy Programme (FLISP). “ooba Home Loans can assist with the prequalification of homebuyers who want to qualify for a subsidy on their home loan. This makes entry to the market significantly more affordable  and helps make the dream of homeownership a reality for low-income buyers .”

The five most important documents for a home loan application

Speaking to the general criteria, Dyer adds that to apply for a home loan, homebuyers must be 18 years or older, permanently employed for at least six consecutive months or self-employed for the past two years.

In addition, the following five documents are required to complete your application and give you the greatest chance of successful approval: 

Proof of income: “The majority of the banks will ask for your last three pay slips from your employer (or accountant if you are self-employed) as proof of regular income.”

Bank statements: Banks will request the last three months’ bank statements from your personal account. The banks will use these to verify your monthly income and expenditure, which includes monthly debt repayments and living expenses. “If you are married in community of property or are applying for a joint home loan, your partner’s bank statements will also be required.”

A copy of your ID: “Make sure that you have a copy of your South African ID document scanned and ready to go.”

Personal assets: The loaning banks will request a birds’ eye view of your personal assets and liabilities through your bank statement. “

The purchase agreement: “The banks will need to see a copy of the purchase agreement on the home that you are wishing to purchase.” Remember that a valuator from the bank is sent around to the property to make sure that the property is valued correctly. A lot of these take place electronically these days, however, it remains a key requirement for final bond approval.” 

Go it alone, or go it together?

The process of applying for a home loan – especially the first-time around – can be daunting. “A free home loan comparison service offers you tools to check your credit score and determine your affordability, helps you get your documents in order and submits your home loan application to multiple banks, so you  receive the best possible interest rate,” he concludes.