Make sure your bond application gets green light
MAIN IMAGE: Carl Coetzee, CEO of BetterBond
One of the aspects in which an estate agent can play a pivotal role is to assist their clients in obtaining a bond on the property they intend to buy. Not that it is their primary task, but assistance in this field can up service delivery and enhance client relations.
Once the ideal home has been found and the bond application has been registered with the bank, the worst message the client can get is “Application declined.” While it’s a hard blow, having your bond declined need not be the end of your home buying journey.
Carl Coetzee, CEO of BetterBond, advises that approaching a bond originator who will help with pre-approval and approach more than one bank on your behalf, will help avoid this scenario, “There are several reasons why a home loan application may be turned down, so find out why you have been declined so that you can be sure of a better result the next time you apply.”
If the bond has been declined by a bank because of a poor credit score, it’s advisable to obtain a copy of the credit report from the credit bureau. Check for any errors so that the report can be updated.
“You may have a limited credit history. Lenders want to see a track record of borrowing and repaying of credit to know that you will be able to repay your bond.
“Your monthly income may be too low. Make sure that you can meet your monthly repayments – including a bond and other household expenses – and still have money remaining for living costs and other expenses. You may have a judgment or a legal notice against your name for outstanding debt.
“Having too many enquiries from creditors on your credit record could also act against you if you are applying for a bond. This happens if you have applied for various credit cards or loans within a short period of time. However, this does not mean that you should not check your credit score regularly.“
Sarah-Jane Meyer writes there are steps one needs to take to improve the chances of having a bond application approved in the future once it has been declined.
“If your application for a home loan has been declined, it doesn’t mean you will never be able to buy your own home. You shouldn’t take it personally – the banks’ lending criteria are regulated by the National Credit Act and there is never any guarantee that they will be able to approve your home loan. To improve your chances of getting approved the next time, you need to understand why your application declined. Next, you need to take the necessary steps to improve your financial standing.
“In some situations, however, other factors may also contribute to the decision. These could include:
- Your employment history– if you have frequently changed jobs in the past.
- Residence instability– if you have often moved from one address to another.
- Cash flow or liquidity problems.
“Furthermore, your credit history and credit scores are primary factors lenders consider when you submit a loan application. If there are any significant negative items on your credit report or other red flags, they may decide that approving your application would expose them to too much risk.
Negative items on your credit report that could result in denial include:
- Too many recent credit inquiries.
- No comprehensive credit history.
- High credit card or store card balances.
- Late payments on accounts.
- Collection accounts.
She says the application could also be declined if the credit score is lower than the lender’s minimum requirement. To prevent this from happening again. When the client is aware of his credit score, they can shop around for loans within your credit range.
Late payment or missed payments or not making the required payment will all have an adverse effect on the client’s credit profile and further diminish chances of securing a home loan or the best possible deal in terms of the loan-to-value ratio (ratio of the size of the loan to the value of the property) as well as the interest rate for the loan.
The balances on existing loans may be too high and a bank could be concerned that you would be unable to repay your bond as well.
Make sure your application contains all the necessary information. Work with a bond originator who will manage the application process for you and at no cost. They understand all the banks’ lending criteria and can guide you through the process to ensure your application has the best possible chance of success.
Coetzee says you have a better chance of securing a bond by working with a bond originator. “By getting pre-approved for your home loan first you know of any red flags with your credit score, or you find out early in the buying process whether you need more information about your income, especially if you are self-employed.” He adds: “Pre-approval gives you a good idea of what you can spend and means that you can make a firm offer to purchase (OTP) when you are ready to buy.”
Working with a bond originator also improves your chances of securing a bond. “Currently 90% of the pre-approved applications BetterBond submits to banks on a buyer’s behalf are approved, compared with the open-market rate which is at around 35%,” says Coetzee. BetterBond can also secure a preferential rate as the banks vie to offer the best deal. BetterBond’s average interest rate concession when applying to four banks is minus 0.61%, which, at a prime lending rate of 7%, brings the interest rate down to 6.39%. This means a total saving of R173 700 on a R2 million bond with a 20-year repayment period.
Coetzee concludes: “It is important that you know your credit status before you start thinking about buying a home and applying for a bond. You can do this by using Experian’s “My Credit Check” self-service portal for a free credit report. Once you know your credit score and you have consulted BetterBond’s affordability calculator and obtained bond pre-approval, you can move ahead with your home loan application with confidence.