Johannesburg, 27 March 2023: – Affordability, key driver on deciding what house to buy, reasons why to use a bond calculator and get preapproval.

While bond calculators and rules of thumb such as buying a home no more than 2.5 times your salary can give you a broad sense of how much you can afford to spend on a home, a more accurate estimate of your housing budget is essential before you make an offer on a home.

Determining your maximum purchase price for a home depends on how much you have in cash for a down payment and how much you can borrow. A lender can pre-qualify you for a loan based on an estimate of your income and credit profile, but before you seriously begin house hunting, you should get a full preapproval for a bond based on verification of your income and assets, your credit score, and your debt.

Decide your own comfort level for your housing payment.

A bond lender will follow a specific formula – usually with an automated system – to determine the maximum amount you can borrow. But even before you meet with a lender, you should review your personal financial picture and decide for yourself how much you would be comfortable paying for a home. There are a couple of ways you can do this.

Bond Options

Your bond payment will depend on your loan term and interest rate. In general, a longer loan term will have lower payments, but will usually have a higher interest rate, and you’ll pay more in interest over time because of the term. If you can afford the higher payments, a loan term of 15 or 20 years can be a smart move to build your home equity more quickly.

1. Look at your current rent payment (or bond if you are a repeat buyer) and think about whether you can handle paying more if you buy a home. Keep in mind that your housing payment includes principal and interest on the bond, property taxes and homeowners’ insurance. If your down payment is less than 20 percent, you’ll need to pay bond insurance.

You may need to pay a homeowner’s association, you should also budget at least one percent of the home price for maintenance and repairs. However, if you go from renting to buying, you will be able to deduct your interest payments and property taxes on your income taxes.

2. One way to evaluate your comfort level is to write down a budget that includes all of your monthly obligations as well as discretionary spending. A lender won’t include extra savings for future college expenses or retirement in your loan calculation and won’t even think about your expenditures for vacations or golf or your intention for one spouse to reduce work hours to take care of your family. Consider important financial and life goals in your personal housing budget.

Loan qualifications

Shop around for a bond with several different recommended lenders because they have different guidelines and different loan programmes.

Lenders base their decision on your credit score, cash reserves, job history and debt-to-income ratio. If you are weak in one area but stronger in another, you may still be able qualify for a bond.

In order to qualify you for a loan and determine your interest rate, a lender will look at a variety of factors, including your income, assets, down payment, credit score, debts, and job history. The higher your credit score, the lower your interest rate will be for conventional loans, which in turn means your payment will be lower.

A quick prequalification is when you provide your income and estimated expenses and then you are provided with an estimated price you can purchase for.

However, an in-depth prequalification is when an originator evaluates how much house you can afford based on a simulated application process. Lenders see if you meet the minimal requirements for a loan, and how big the loan should be. Prequalification is ideal for people who are considering homeownership but who are not necessarily committed, whilst doing an in-depth prequalification will provide you with a more accurate number.

It involves some of the same steps as prequalification, though borrowers must submit financial documents. One stipulation is that borrowers must carry out a credit check. Originators review the information for a more precise idea of the amount home borrowers can afford.

What are the benefits of a prequalified mortgage?

IT SETS A CLEAR BUDGET

When you are looking for a home, it is easy to get carried away at looking at homes which are actually out of your price range. Prequalification keeps those urges in check. While you can still borrow the maximum amount, prequalification sets a realistic expectation for your budget.

During prequalification, an originator will give you a range for how much home you can afford. That way, you can stay within the estimate while house hunting. Remember, a mortgage payment is one part of a budget. Make sure you feel comfortable with the loan amount before proceeding.

IT SHOWS SELLERS YOU’RE SERIOUS

Whether you are a home buyer or a seller, no one wants to waste their time. Getting prequalified demonstrates to sellers that you’re serious about home buying. In some cases, realtors will insist on seeing a prequalification letter before showing you a home.

IT IS EASIER THAN PRE-APPROVAL

Prequalification is simpler than preapproval. While both processes take one to three days, prequalification does not require as much paperwork. In most cases, a lender only needs your credit report and some bank statements. Loan preapproval is a more in-depth process, and requires evidence of debts, liabilities, other assets, and tax returns.

IT SAVES TIME

The average homebuying process takes anywhere between three to six months. Loan prequalification lets you chip away at that number. For instance, having an estimate for your loan’s value will keep you from looking at unnecessary houses. When it comes to negotiating with sellers, you will have a sturdier position knowing your budget, too.

Additionally, prequalification streamlines homebuying. The process requires you to get your papers in order in advance. It also gives you the chance to review and dispute any errors on your credit report or financial documents.

What do originators look for during prequalification?

Prequalification considers several factors, ranging from credit profile to gross income. While each Originator has a slightly different way of calculating qualification, here is the essential information you’ll need:

• Gross income
• Credit score
• Proof of employment
• Monthly debt payments
• Ideal mortgage term and interest rate
• Records of Insolvency

How Do I Get Prequalified for a Mortgage?

Prequalification is the first step in the homebuying process. A word of caution, many online offerings and “do it yourself” pre-qualification tools are not accurate pre-qualifications but rather affordability calculators.

A true prequalification entails a fair amount of work and requires paperwork, a good bond originator or consultant can assist you in the process, they will assist you with:

• Checking your credit score
• Looking for defaults against your name
• Advise on the likelihood of approval
• Fix any errors in your documentation and application
• Identify your marriage status and advise on possible outcomes
• Advise on self-employed vs salaried requirements
• Discuss possible products that would suit first time buyers
• Provide you with an accurate amount you can purchase for
• Discuss the hidden costs of buying a property

The Bottom Line

If home buying feels overwhelming, prequalification can make it more manageable. When you do a prequalification just using a calculator you are not considering your credit score, changes in your income and expenditure, bank policies that influence deposit requirements and the particular requirements of individual banks and lending institutions.

Prequalification gives home buyers a way to estimate how much home they can afford while simplifying the mortgage loan process.

Contacting MultiNET Home Loans to assist you with a true prequalification process, is about giving an identity to what otherwise is just another application. You do not get lost in a system, there is a champion representing you, and ensuring that you get the best deal. Given that this is a free service, the use of this service is often a best-kept secret. By partnering with a consultant from MultiNET Home Loans you will be in on your perfect house sooner rather than later.

About MultiNET Home Loans

MultiNET Home Loans is the only independent bond origination company in South Africa. They are committed to evolving the origination industry through cutting edge innovation in systems, processes, and the development of people, specifically supporting the development of previously disadvantaged segments in the market.

After all is said and done, the real strength of MultiNET is our commitment to our customers; The company is passionate about finding the best deal for customers, providing the best advice and helping South Africans make home ownership a reality – through integrity, honesty, transparency and a caring philosophy. For more information visit www.multinet.co.za