Don’t take a loan for a house deposit
Category General News
Buying a house most often requires a loan from the bank, but the banks ask for a deposit on the loan, in cash, in return. This deposit is usually between 5% and 20% of the total loan amount. Ideally, this deposit should be paid in full and should be in your account in its entirety at the start of the process.
Taking a loan from another bank to pay this deposit is a bad idea as it can seriously reduce your chances of qualifying for a home loan. On top of this is the fact that you’ll be adding to your total debt before the purchasing process even starts.
“Taking out any form of home loan while applying for a bond or during the registration process may result in the bank reversing its initial decision to grant you a home loan,” says FNB Housing Finance CEO Lee Mhlongo.
“This is due to the fact that your credit profile will be in a poorer state, as you will now be required to repay both your home loan and additional loan instalments monthly,” she says. Starting off your homeowner journey with multiple sets of debt is not ideal.
A deposit is not always required by the banks
Banks will take a look at your credit status to assess whether you will be able to repay the bond. Depending on your credit score, some banks may offer you 100% of the bond without the deposit.
Lower-income and first-time buyers are also considered for 100% bonds without deposits as the banks are aware that the chances of these buyers having the deposit in cash is unlikely. The banks want to assist these clients as they will become clients for the next 20 years or so.
The best way to tell how much the bank is willing to give you for the bond is to apply for a pre-approval. This will give you an estimate of your bond and will allow you to start saving in advance for any deposit that may be required on this payment, as well as the transferring attorney fees.
If you do qualify for a 100% bond and are able to pay a deposit still, the bank will then offer you a lower interest rate. This means that the total amount to be repaid over 20 years will be significantly less, and it will also improve your credit score at the same time.
“Keeping your credit record clean and saving in advance for a deposit and attorney fees before applying for a bond can give you peace of mind knowing that you stand a greater chance of qualifying and there are no surprise costs that will catch you off-guard,” says Mhlongo.
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Author: Berman Brothers