0/3

From The Blog

When applying for a home loan this is how the banks will asses you

When applying for a home loan this is how the banks will asses you

<p>&ldquo;It is vital to be honest when declaring true income and expenses. We all want to own that dream house, but it&rsquo;s worse to see that same house being repossessed due to defaults on the monthly repayments,&rdquo; says Van Staden.</p> <p>This is according to Albertus van Staden, Head of Credit at FNB Housing Finance, who says in order to give yourself the best shot at being granted a loan for your dream home, it is important to understand what the bank uses to assess your affordability.<br />&ldquo;One of the major reasons that a home loan application is declined is because the potential homeowner unable to afford the monthly repayments,&rdquo; he says.</p> <p>While there are online tools that will give you an indication of what you will be granted, Van Staden says these are estimates. In order to determine a final bond amount the bank will use your income, credit and living expenses to perform an affordability assessment.</p> <p>&ldquo;An affordability assessment is vital to the home loan process as it will determine what the bank grants as the final home loan amount,&rdquo; says Van Staden.</p> <p>&ldquo;Everyone wants to show that they earn enough income to afford the house they want, but you also need to be realistic about what you can actually afford.&rdquo;</p> <p>1. Your income</p> <p>The first port of call is to determine your income, says Van Staden.</p> <p>Typically an income is received through a monthly salary, however, salaries can vary according to the work and payment structures of individuals, he says.</p> <p>For example, some people may receive a fixed amount while others may receive commissions due to the nature of their jobs. A salary may also include additional forms of income such as allowances, overtime and bonuses.</p> <p>The bank also considers other forms of income that are derived from investments such as rental income on other properties.</p> <p>&ldquo;We will base the loan amount on the expected monthly income you receive,&rdquo; says van Staden.</p> <p>&ldquo;This means that for a person with a fixed monthly salary, meaning the &lsquo;take home&rsquo; pay is the same every month, the bank may take this entire amount into consideration.&rdquo;</p> <p>However, he says if you are a commission earner, or receive income on an irregular basis such as overtime, they will use the average income over the last few months, with a minimum of three months.</p> <p>&ldquo;Some lenders prefer to look at an even longer period as income can sometimes be seasonal or exclude income such as overtime, as this is not guaranteed every month.&rdquo;</p> <p>2. Your expenses</p> <p>After ascertaining your income, the bank will consider your expenses.</p> <p>&ldquo;Taking just your income into account is not an accurate assessment of your affordability, as there are expenses that will have to be maintained along with your bond repayments,&rdquo; says Van Staden.</p> <p>There are three different types of expenses that will need to be included in your application: credit, living and additional expenses.</p> <p>Credit expenses are monthly instalments for debt obligations such as credit card or car repayments.</p> <p>Living expenses are categorised as essential expenses. These are expenses that you can&rsquo;t live without, such as transport, food, education, medical and electricity and water, to name a few.</p> <p>Finally, additional expenses are those that are not vital for everyday living, such as satellite TV, airtime or assurance premiums.</p> <p>&ldquo;It is vital to be honest when declaring true income and expenses. We all want to own that dream house, but it&rsquo;s worse to see that same house being repossessed due to defaults on the monthly repayments,&rdquo; says Van Staden.</p> <p>&ldquo;If you cannot afford it, save for a bigger deposit or look for something that is within your means.&rdquo;</p> <p>PROPERTY24</p>