While saving up a deposit to purchase a property is a great financial feat, there are several other financial considerations that buyers need to keep in mind when preparing to purchase a home, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
“Having savings set aside is a major part of preparing to buy a home, but there are also several financial missteps that buyers can make that will complicate their prospects of being able to purchase a property,” says Goslett. “It is important for the potential buyer to avoid these financial mistakes to ensure that they have the best chance of getting the finance they require to buy their home.”
Goslett provides buyers with a few financial missteps to avoid during the home buying process:
A low credit score will negatively affect a buyer’s chances for bond approval and will also have an impact on the interest rate that a bank is willing to give them. According to Goslett, any late payments on credit accounts will have an adverse effect on the buyer’s credit score, so it is important that all payments are made on time. “Buyers should also avoid applying for any other credit cards or accounts, as multiple credit enquiries will have a negative impact on their credit score. Buyers should ideally focus on paying down any existing debt to around 30% or less of the limit and correct any errors on their credit report,” he says.
Consumer debt accounts for a large percentage of a buyer’s credit score. While a late payment on any consumer debt will have a massive effect on a credit score, the type and the time since the last late payment also matter. Goslett says that is highly advisable for potential buyers to pay off any accounts that are due, before applying for a home loan.
Before applying for a home loan, buyers should avoid any credit-driven retail splurges or buying of big-ticket items such as a car. Purchasing large items on credit before applying for a bond will reduce a buyer’s chances of approval, as well as the amount that the bank is willing to give them.
Buying big-ticket items with cash can also have an adverse effect as it can raise red flags with a lender. Large withdrawals from the buyer’s account might require an explanation during the bond approval process.
Goslett says it is best to avoid interrupting stable employment during the home-buying process, as lenders take the length that the buyer has been in their current job into account. “Banks and financial institutions like borrowers who have a relatively stable recent employment record with at least six to twelve months or more in the same job with a regular income,” says Goslett. “If a buyer is considering changing jobs and purchasing a home, they should opt for one or the other for the time being. It best to either hold out on changing jobs or hold out on buying property.”
There is sometimes a distinct difference between what a bank is willing to lend a buyer and what they are actually able to comfortably afford, bearing in mind that there is more to pay for a home than just the bond repayment. Goslett says that a buyer should try to stick with the price range where they can comfortably manage the monthly bond payment and have something left over. By looking at homes below their maximum limit, a buyer will also be able to compete with other buyers in a multiple-offer situation.
“Being equipped and prepared financially is the first step to achieving your homeownership goals,” Goslett concludes.