Highlights in this issue:

*** If you get in today, you’ll save R3,216.92 a month on a R1 million bond…
*** This is a vital step to closing your next property deal…
*** 720: The most important number you’ll need to get a home loan… and more…

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From the pen of Karin Iten

Dear Investment Academy Reader,

There’s never been a better time to buy property!

This may take you by surprise – especially given how often you’ll hear differently in a week – but I couldn’t be more determined. Here’s why…

*** Firstly, property prices are incredibly low right now. According to Absa’s House Price Index, in real terms, “prices have dropped to levels last seen in early 2006”.
*** Secondly, thanks to the recent spout of interest rate cuts, prime is now only at 10.5%. That’s the lowest it’s been since October 2007. On a R1 million bond, you’re saving a whopping R3,216.92 each month compared to eight months ago when prime was at 15.5%.

Despite this, it’s become harder and more expensive to get a bank to approve your bond application. Back when the property market was booming, banks would happily give you a 100% home loan, regardless of the property value.

These days, you can count yourself lucky if the bank only asks for a 15% deposit. Most of them now demand anything between 20% and 30%. Even worse, they’re only willing to give you a maximum loan of 95% of the value of the house. This makes things tough for the prospective buyer and it’s why I’m going to share my top five tips to getting the best home loan out there.

Tip #1: Start planning 6 months in advance
If you’re thinking about buying a new house, do the work upfront. Approach your bank. Find out how much they’re willing to lend you and ask them to pre-approve your bond.

According to home loan financier, Ooba, “getting yourself pre-qualified before putting in an Offer to Purchase should be the first step you take. The National Credit Act stipulates that monthly deductions, e.g. income tax, monthly living expenses and debt need to be taken into account.” Just remember, pre-approval is only valid for 90 days. So be ready to act quickly.

Tip #2: Keep an eye on your credit score
I can’t stress enough how important your credit rating is. It shows that you take your debt seriously. And it affects the bond rates your bank is likely to give you. According to experts, the best rates tend to go to those with a credit score of 720 or higher; who have been with the same employer for at least two years; and have money for a deposit. So if you’re thinking of buying a house, request a free credit rating report at www.mycredit.co.za. If your credit rating is less than ideal, work on raising it before you apply for a loan.

Tip#3: Shop around
According to homebuyer.com, a “30 year loan is your best choice if you’re looking for a long-term stable loan. It’s usually the safest home loan you can get.” By stretching the repayment term to a 30 year bond you can bring down your monthly bond repayments. A longer home loan repayment term will improve affordability and free up your monthly cash flow. But it's important to know that the longer the repayment term, the more interest you'll pay. Remember this when you’re shopping around.

You’re likely to get a better rate if you bank with the loan provider. For example, a Standard Bank customer will get a 95% loan on a house worth R1 million. But a non-Standard Bank customer may only get a 75% loan. This isn’t guaranteed though… so shop around to make sure your bank’s giving you the very best rate.

Tip #4: Limit your credit applications
Your level of debt can affect the amount you qualify for. So think twice about applying for any other lines of credit if you’re applying for a home loan. The bank will just get the wrong impression of you. They’ll think you’re the type of person who shops ‘till they drop. It might compel lenders to turn you down.

Tip #5: Give a good down payment
The higher your deposit, the less you’ll need to borrow from the bank. And ultimately, the more you’ll save on interest. So if you want to keep your debt to the bare minimum, add extra cash to your down payment. If that’s not an option, try to pay a little extra (even if it’s just a few hundred rand) into your bond every month. You’ll soon see the benefits.

Getting the best loan, all comes down to that age old Scout mantra: “Be prepared!”

Here’s to your financial freedom,

Karin Iten
For the Investment Academy