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Frequently Asked Questions
Do I really need an estate agent when buying a home?
An estate agent is usually appointed by a seller, so although you don’t need one in order to buy a home, you may have used one when you were house hunting.
How to build up a good credit record
There are two main ways – always pay your bills on time and the correct amount. If you don’t have any accounts/credit, then create a credit history. One way to do this is to apply for a credit card or bank overdraft, and in a very controlled way, use that credit and then repay what you owe on that card/overdraft. That will show your reliability when it comes to repaying any future credit obligations you may have.
How to prevent yourself from being blacklisted
If you owe money to a credit card company or retail store (or others like doctors), you need to pay those monthly installments or bills ahead of, or on time, and you must pay what is required. If you can’t pay for whatever reason, contact them and explain. Don’t imagine the problem will go away. It won’t.
Contact the store/cellphone service provider, explain your situation, and renegotiate a payment schedule. Make sure you get everything in writing.
What is bankruptcy, insolvency, sequestration and rehabilitation?
This means that at some stage, your business failed or you, in your personal capacity, had no money to pay your creditors. When you can no longer meet your financial obligations, you have a few initial choices, and going into debt review is one of them.
If that isn’t successful, you will file for bankruptcy or insolvency, or, in the case of sequestration, go into voluntary sequestration or be put into sequestration. In these cases, it can take a specified number of years before you are ‘rehabilitated’, in other words, a number of years must pass before you are able to apply for any credit whatsoever.
What is a default, judgement or administration order?
When you take out a store or credit card and fail to honour the terms of the agreement you signed, you will end up with one of these negative judgements. It generally happens after you’ve been contacted by the credit provider, and you still haven’t paid what is due. These orders are known as being blacklisted, which involves a poor credit rating at the credit bureau.
What is a credit bureau?
South Africa has a number of private credit bureau. They gather, record, update and make available to their subscribers, all the credit information about consumers like yourself. For example, if you’ve managed a store account poorly, and haven’t paid what you owe on time or the full amount due, that information is likely to be held at the credit bureau. That information will be given to a subscriber like a bank who queries your credit record.
Should I buy or continue to rent?
There are pros and cons to both, with different rights and obligations in each case. South Africans love to own their own homes, and ownership is considered a good long-term investment, as opposed to renting, where the money you pay every month, is essentially ‘gone’. For more in-depth information, take a look at Owning Property versus Renting, in the Knowledge Repository on this site.
What costs are involved in buying property?
Your main cost is the purchase price of the property – you probably paid a deposit, and funded the remainder with a home loan. You will pay interest on the money you borrow. There are other main costs too, such as transfer Duty (if the property price is over R1m) – that’s a tax paid to the government – transfer fees, and bond origination fees.
When must I start the home loan application process?
As soon as you’ve found the property you want to purchase and both you and the seller have signed the Offer to Purchase, apply to WeApply for a home loan.
What are the reasons I could be denied a home loan?
If you have been blacklisted – and haven’t applied to have that listing removed or haven’t repaid what you owed – you will not have a great credit score. That can affect the success of your application, but a weak credit history does not necessarily exclude you. It will depend on how poor it is, and whether you are able to resolve it.
If you aren’t able to prove you can afford the home loan for which you are applying, you will be denied it.
How long is the pre-qualification certificate valid for?
A pre-qualification certificate is valid for 60 to 90 days but can be recalculated and revalidated after this period.
Government housing subsidies explained
There are a number of different ways the SA government assists new or first time SA buyers in what is known as the Affordable Housing market – these are South Africans considered ‘too wealthy’ to be eligible for free government housing, but ‘too poor’ to be approved for finance through normal banking channels.
What is FLISP?
The Finance-linked Individual Subsidy Programme known as FLISP is there to help lower-income groups buy their own homes. FLISP is a subsidy, not a loan, so you will not have to repay it. The department pays this amount directly to the bank, not to you.
FLISP works like this. If you are a South African citizen and earn a gross salary of between R3 500 and R22 000, you are eligible for the FLISP subsidy. This will help to reduce your home loan amount, and therefore your monthly home loan repayments.
The amount that you are eligible for is dependent on your monthly income. Work it out on the FLISP subsidy calculator www.flisp.co.za
To give you an idea of what you could be eligible for, if you earn between:
R3 500 and R3 700, you can apply for a FLISP subsidy of up to R121 626;
Between R21 800 and R22 000, you can apply for a FLISP subsidy of up to R27 960.
Importantly, you cannot apply for a FLISP subsidy unless you’ve been approved for a home loan. Neither can you apply if your application for a home loan was rejected.
What criteria makes you eligible for a FLISP subsidy?
- Know what you can afford.
- Submit an Offer to Purchase for the property you have chosen (newly built or existing house).
- You need to have a letter in principle from the bank – it must show how much you qualify for, or the actual loan which has been approved.
- You need to have a family – it can be a spouse or long term partner, or dependents.
- You must be a South African citizen or a lawful SA resident.
- You must be over 18, or if you’re under 18, you must be married or divorced, with financial dependents.
- Your gross monthly household income must be more than R3 500 but not more than R22 000.
- Neither you nor your spouse may have received a previous subsidy.
- You must be a first time home buyer
- You and your family must intend to live on the property you’ve purchased with the FLISP subsidy.
- If you are single with no dependents, you can apply if you’re elderly, of ill health, or disabled.
Different types of residential property ownership
There are a number of different types of properties, and it’s best to understand the difference.
- Freehold – either a piece of land, or a piece of land with a house on it. You own it completely and have full rights over it. You are obliged to maintain the property and to pay the applicable rates and taxes to the municipality.
- Freehold residential property in clusters and estates – you own the property and have full rights over it, but these rights are subject to the rules and regulations of the Home Owner’s Association’s(HOA) or Management Committees. You must read through the rules because they can be restrictive and you may not like them – it will be a condition of purchase that you agree to abide by them. You are obliged to maintain the property, and pay the applicable rates and taxes to the municipality. You will probably also be paying a levy to the HOA, and you need to make certain you know how much it is, and what it covers.
- Sectional title properties, such as flats, townhouses, semi-detached houses, duet houses, and holiday apartments. A sectional title scheme can be freestanding or joined units on a property – each person owns a portion of a building, and all owners together own the land as well as the common property such as staircases and so on. There are exclusive use areas which are used solely for the use of specified individuals. Sectional title schemes are run by the elected trustees of the Body Corporate, and this Body Corporate collects the levies which each owner pays – they pay bills, manage the finances and ensure all owners comply with the rules.
- Shareblock schemes. You do not own the apartment or section you occupy, but you rather own shares in the Share Block Company – the property will be registered in the name of the Share Block Company.
What about being blacklisted, having judgements or defaults?
One of the most common causes of banks not granting home loans is because of the buyer’s previous credit history. If you have a poor credit history, you need to resolve it before you house hunt. Don’t risk finding the home of your dreams, and then when you apply for a loan…be held up for a long time because you are blacklisted. There can be long delays to remove a blacklisting.
When you are dealing with a creditor, always make sure you have everything in writing.
Blacklistings – different kinds?
A default is when you’ve failed to pay an outstanding amount – to a doctor, chain store, and others – and they have ‘listed’ you. That listing usually remains for three years, but in some cases, it is possible to have it removed sooner. You need to pay the outstanding amount, and ensure that the company agrees to the removal of the default. Note, any business which is a member of the Consumer Credit Association (most chain stores are members), will not remove that default, even if you do pay the outstanding debt.
When you have a default listing, contact the company which listed you. Before you pay the outstanding amount, make sure that company will provide you with a letter which confirms they’ll remove that negative listing within 24 hours of you having settled that debt.
What is a judgment? This is a court order forcing you, the person who hasn’t paid the debt, to pay it. A court order gives the doctor or whoever, power to take further action against you to recover that debt. A judgement has to be rescinded (reversed), before it can be removed, and if it’s a High Court application, it can be a complicated, costly process, with no guarantee of success at the end.
In the case of some financial institutions and retail stores, they will not agree to a rescission of judgment even if the debt has been completely repaid. The listing will be altered to ‘debt paid up in full’, but it will remain listed for five years.
Always get the company to provide you with a written guarantee that they will consent to a rescission of judgment. A verbal agreement is of no use under these circumstances.
Are you creditworthy?
What does creditworthy mean? It means are you able to be given credit, and if you are, how much can you handle?
You need to check your creditworthiness before even considering buying a property, and certainly before you sign any Offer to Purchase a property. It’s really straightforward, and there are a number of credit bureaux where you can check your status. The National Credit Act (NCA) entitles you to one free credit record check in a 12-month period, but because you are entitled to check with each of the bureaux, you can actually check your credit rating every four or so months.
If your rating is poor – perhaps you haven’t paid off a debt in full, or there may even be a mistake – you then can deal with it. Do your best to rid yourself of all blemishes on your creditworthiness rating.
Honesty is the best policy
Honesty is always the best policy when you’re applying for your home loan. If you have any creditworthiness problems, but are in the process of dealing with them – and have documentary proof of that – just come clean and tell the bank. Just as it’s simple for you to check up on your own credit worthiness, it’s just as simple for other organisations to do the same check to make sure you’re not in financial difficulties. The bank has every right to protect itself and its money, and they won’t want to take a risk of you not being able to repay a home loan.
How to build up a good credit score
It’s really important to have a good credit score, because once you’ve spoilt that, it’s difficult and time-consuming to get it cleared. A good credit score ensures that, when you need to borrow money, you will not be obstructed by your history.
What if you’ve never borrowed money – how does the bank know your history? They don’t, which makes it very difficult for them to assess whether you’re a good credit risk (In other words, whether you’ll pay back your loan).
The best advice to you is to apply for a credit card or overdraft, and use it. Be very careful, because it’s so easy to use a credit card or overdraft, and you don’t want to get yourself into difficulties. When you use that credit card, make absolutely sure you pay back money into that account, and always pay at least what you spent, and make sure it’s on time.
That goes for any credit you may have – always pay on time, and if you can’t, make sure you contact the retail store/whoever it may be, and explain your situation. Arrange payments, and stick to them. Make sure everything you do is in writing.
Ignoring the problem does not make it go away. Never ignore any letters of demand.
Owning property versus renting
Owning rather than renting a property has always been preferred by South Africans. You are your own boss, you own the home and the land it’s on, you can alter it to suit your needs, you’re able to sell it when you want to, and you’re putting your money into something which should, in the long term, be increasing in value. Owning and renting are of course two entirely different concepts, and usually occur at different stages in life. If you’re young, still finding your perfect job, want to travel and be mobile, renting works well; on the flip side, if you’re young but have a stable career in a company you like, and married with children, you’ll be looking to put down roots – home ownership could work for you.
To own a home, there are expenses that not everybody can afford. You need a deposit, to make a commitment to repay a home loan for usually twenty or more years, and be able to service all the utility bills and maintenance – these have to be factored into your budget, so you don’t find yourself struggling when, for example, the interest rate rises and you’re liable for higher repayments on your home loan.
Home ownership is considered an investment, and for those who own property their entire lives and have paid off their home loan, it can form an important part of a retirement portfolio. A homeowner can also use his property as security to obtain finance.
In some ways, it’s easier to budget when you’re renting – you will know the annual escalation, and you’re unlikely to have any nasty surprises for which you are financially responsible. That can happen with home ownership – a leaking roof and so on.
Ownership provides a sense of security and permanence. Renting doesn’t – it provides freedom.
If you can afford to buy your own home, most South Africans would choose that. Even if you rent now, you’re likely to work towards ownership when the time is right.
Do an affordability exercise to determine your budget
Chatting to a home loan consultant – or accessing our handy Affordability Tool on line – will help you determine what size home loan/mortgage bond, for which you are eligible. Your home loan is repayable monthly, so not only does the bank need to make sure you can comfortably afford the repayment, but you, too, do not want to find yourself struggling to repay that loan.
Battle of the budget
Do some honest homework to calculate what you can afford. Draw up a detailed budget of monthly expenses, don’t leave out anything, and make sure you update it every year. The cost of living goes up, your lifestyle circumstances may alter your expenses, the interest rate could rise – all of these factors and more, will affect your budget. It’s helpful, too, to compare one year to another, and if your expenses are rising faster than your income, find ways to cut back.
When you do your budget, look hard at your ‘expensive’ debt like credit or store cards. Do your utmost to repay those debts as soon as possible, for those high interest rates can be very draining on a budget – once paid off, the best advice is to lock those cards away.
Your home loan – a savings account?
If you are granted a home loan that allows you to access surplus money, use your home loan account as a savings account. Put any spare money into that – if you don’t access that money, you’ll pay off your home loan sooner, and you could save a great deal of interest.
Homes need maintenance, and you must budget for that. It’s not an easy calculation, because you can’t predict the future, but you need to be aware that a home which falls into disrepair loses value fast. Keep up with your maintenance – it costs far less to do it now before the problem gets bigger and costlier.
Saving for a deposit and the hidden costs
Who’s able to buy a home without taking out a home loan? Very few people. It’s a major purchase. For a bank to grant you a loan, you need to meet a range of criteria, one usually being that you put down a deposit. A deposit is usually 10 percent of the purchase price – on a R500 000 apartment, you’d need to have saved R50 000 for a deposit. Depending on your circumstances, a bank may insist on a higher deposit.
There are a few reasons why you usually need a deposit, but mainly, it shows the bank that you’re serious about buying a property. The bank can see that you’ve been saving. A bank wants to lessen its risk, and your deposit indicates that you’re a lower risk.
There are benefits for you, too, at having paid that deposit:
- You don’t need to borrow the property’s full price
- A smaller loan means you pay lower monthly payments
- A bigger deposit gives you better negotiating power with the bank – you could get a lower interest rate
If you negotiate a lower interest rate, it can make a significant difference to your payments over the period of the loan. Also, paying a little extra into your bond every month, means you could pay off your home sooner.
The Hidden Costs
When you buy a property, you focus on the property price. But there are other costs which you must also factor in.
- transfer duty or VAT which is paid to the South African Revenue Service (SARS)
- fees charged by the legal conveyancer who does all the legwork and paperwork to ‘transfer’ the property into your name
- a fee which the bank charges for initiating your new home loan (and the administration fees associated with that).
Once you input the property price into our on-line calculator, you’ll see very quickly what those costs are. Then you can put together a realistic budget.