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Best Approach To Get The Best Bond

Best Approach To Get The Best Bond

24 February 2020

Buying a new home is exciting but daunting for anyone, especially first-time home buyers. Finding a dream home is the fun part. Getting property finance is an entirely different story. So, what is the best approach to home-loan applications? Paul Stevens, CEO of Just Property, helps to demystify the home loan application process.

“One certainly feels a sense of confidence in dealing with the bank you have a history with, but new buyers need to be aware that the best deal out there may not come from their own financial institution,” says Stevens. “It makes sound financial sense to get a range of quotes, and you can absolutely do it yourself.”

Stevens recommends approaching a mortgage originator before you approach your bank. If you don’t, the bond originator may not be able to best represent you. Once you have an idea of what the open market is prepared to offer, you can use that as a point of negotiation. Bond originators, such as Ooba or BetterBond already have  relationships with all the banks; as a result, generally, they have a better bond-approval success rate and can negotiate on your behalf to secure the best rate and terms,” says Stevens. “Our Just Property agents nurture relationships with local bond originator representatives to ensure high levels of customer service and can connect buyers with them”.

“While the overall approval ratio for new credit applications in SA has fallen to 44%, our approval ratio for home loan applications has remained at more than 75% for the past two years, and 90% for those clients that pre-qualify with us first” wrote BetterBond CEO Carl Coetzee in May 2019. BetterBond gives the following illustration of the benefits of evaluating a range of quotes: “The average variation between the best and worst interest rate offered on a bond application is currently around 0.5%, and on a 20-year bond of R1.5 million, that translates into potential savings of more than R120,000 of interest over the lifetime of the bond, as well as a total of about R6,000 a year off the monthly bond instalments.”

Stevens notes that bond originators can also help buyers get a zero-deposit bond, if required. “Our Just Property agents can provide insight into when a zero-deposit bond may be appropriate and that can be further discussed with the originators.”

Kay Geldenhuys, Head of Sales Fulfilment at Ooba Home Loans, explains: “More than 60% of all the applications received by Ooba home loans are from buyers who have no access to a deposit.” She adds that more than 80% of these applicants “are being approved for finance, and four out of five are successful in their bid to secure a 100% bond. The rest are required to raise a deposit, usually between five and ten percent of the purchase price.”

Applicants using a bond originator will fill in one application form only, provide the documentation required, and the bond originator will do the rest. “You’ll end up with a range of quotes to compare from all the banks. Their service is free, with no obligation attached,” says Stevens.” Our Just Property agents, we know how stressful applying for a home can be, and we recommend our clients make their decision based on the application process that will cause them the least anxiety and achieve the most advantageous rate.”

Stevens points to another advantage of the service provided by bond originators: the prequalification certificate. “Prequalification gives buyers a distinct advantage: sellers want to know that a buyer can afford to buy their home, and a certificate of prequalification is proof of this. It also ensures that buyers know in advance what budget they have to spend and ensures they don’t get in over their heads. Our most professional and experienced Just Property agents understand the value that the prequalification certificate has, how long it is valid for and behaviours the buyers should avoid to protect or improve their prequalification status”.

Prequalification is based on your monthly earnings and expenses, any debts you have plus your credit score. It also follows the guidelines laid out in the National Credit Act. Details you’ll need to provide are your monthly income, what you spend it on (including income tax) and the debts you already have.

The certificate you receive is valid for 90 days after which it is recalculated based on any changes. This gives those who, for example, got a lower qualification based on a poor credit score, a chance to improve their profile.  

There is a lot of paperwork involved in applying for finance and if you approach the banks individually yourself, it’s doable but hard work. And, as Stevens notes, not every buyer has the confidence and skill to negotiate the best deal with each bank, which is why Just Property agents encourage the use of a bond originator. The latter typically requires only one application form to be filled and will help you collate the required documentation.

Once the applications are received, the banks will respond with their quotations which include the interest rate offered, cost of the credit and any conditions. You can then decide between the quotes and refer them to your bank for further review, if appropriate. 

Know what costs you’re committing to

When you’re doing your sums, Stevens reminds buyers to take into account that purchasing a home has more costs attached then the monthly bond installments. Dave Nezar, Partner at Kaplan Blumberg Attorneys unpacks these costs:

  • Transfer Costs: the costs of transferring ownership of property into your name comprise costs due to the government in the form of transfer duty, legal costs, as well as a number of payments the attorneys, have to make to obtain clearances
  • Transfer Attorney Fees: fees prescribed by the Law Society of South Africa, calculated on the purchase price of the property
  • Postages and Petties: costs incurred such as telephone costs, postage and courier fees, administration fees and bank charges
  • Deeds Office Fees: fees published in the Government Gazette, calculated on the purchase price of the property
  • Electronic Generation Fee: fees incurred for the generation of electronic documents
  • FICA: costs incurred when verifying the identity of a client prior to establishing a business relationship with them
  • Deeds Office Searches: search fees to ensure there are no conditions that may prevent the property transaction
  • Rates Clearance Fees: a rates clearance certificate must be obtained to verify that there are no outstanding rates and taxes payable by the seller of the property
  • Transfer Duty: tax levied by the Government on property transactions

If you are using a bond to buy the house, there will be bond costs payable too, including registration cost, Deeds Office fees, FICA, postage and other sundries, and a bank initiation fee. Nezar notes that “the bank will appoint an attorney firm on their panel to attend to the registration of the bond at the Purchaser’s cost. We often find clients don’t know this and don’t budget for the second conveyancing account”.

Kaplan Blumberg Attorneys have created an online Transfer Cost Calculator. Calculate your estimated registration fees and bond repayment HERE.

For more information on Just Property please visit www.just.property or call (087) 550 2258.

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