Fewer experiences in life are as comforting and exciting as purchasing a house.

It is indeed a feeling of significance and security especially in situations where one could not have imagined owning a home of their own. Owning a house is real security regardless of what the intended purpose is e.g leasing out, living in, renovating and selling.

For those who choose to buy immovable property through home loans, it is advisable to first get an understanding of what lenders critically look for in Home Loan applications, so as to stand better prospects of approval.

Home Loan Application Requirements in South Africa

While it is correct to say a good credit score enhances a Home Loan application, lenders in actual effect go beyond credit scores and profiles in their assessment of the application.

In this period of economic doldrums precipitated by a pandemic, lenders are a bit more cautious. Below is a summary of the various home loan application requirements that lenders make inquiries on in determining if a Home Loan application is successful or not.

Credit Profile/Credit Score

This is one of the most important and foremost indicators which either enhances or paralyzes an application for a Home Loan. Credit Bureaus such as Transunion, Compuscan, XDS and Experian retain large databases with Credit Profiles of credit consumers in South Africa, available upon authorised request to Lenders when as and when required. Needless to say, a higher risk consumer stands a lesser chance of approval.

The below points list some of the information which can be obtained for assessment on a consumer’s credit profile:

• Identification of the Consumer
• Debt repayment history
• Number of accounts open
• Types of credit facilities open
• Balances owing
• Default history and Judgments

Employment Security/Income Security

An application for a Home Loan must be presented with accompanying proof that the consumer has capacity to fulfil repayment obligations as and when they are due. For long-term credit facilities, consumers with permanent and secure employment stand on favourable grounds as opposed to those employed on shorter-term contracts whose renewal is not guaranteed.

Deposit

Some Home Loan lenders require a deposit, calculated in proportion to the property valuation and the risk profile of the consumer. The payment of a substantial amount in deposit has the effect of reducing the interest payable in the long run and attracts a favourable interest rate. Additionally, it improves the Home Loan amount offered and secures positive equity in the property relatively sooner.

Some Lenders however, offer 100 percent finance to qualifying consumers without the need for a deposit.

Expenses/Financial Obligations (Affordability)

In as much as a consumer has a stable job and/or a secure source of income, affordability plays an important role in the determination of an application for a Home Loan.

Affordability speaks directly to the ability of the consumer to honour the Home Loan repayment. The National Credit Act 34 of 2005 which provides the regulatory framework for the credit market, has provisions in Section 80 whereupon if it was reasonably evident upon assessment that the consumer will not be able to pay the loan repayments or that by granting the loan the consumer would be over-indebted but credit was granted anyway, such loans may suffer the risk of being declared reckless lending which will be to the detriment of the lender. Home Loan finance providers are cautious in their assessment owing to this aspect.

Phoenix Group - Bond Origination Specialists

The above are some of the most important factors that determine the success or failure of a Home Loan application. Phoenix Group offers a professional and personalised service which is committed to securing the most ideal Home Loan offer with favourable terms and cost-effective in the long term. Kindly contact us for comprehensive assistance.

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