How to boost your chances of being approved for a home loan in South Africa

In the face of record-low interest rates and bargain property prices, even life-long tenants are taking the plunge and applying for a home loan.

Adding to the home-buying frenzy is favourable lending criteria and high approval rates by the banks. The latest oobarometer Q2 2021 statistics indicate that approval rates reached 82.3% through ooba Group’s home loan originator service, which applies to multiple banks (up to nine banks) on an applicant’s behalf.

What’s the secret?

With a success rate like 82.3%, is there a secret formula to ensuring that your home loan application will be approved?

“Yes. The key to ensuring that your application is successful starts with understanding what the banks are looking for,” said Rhys Dyer, chief executive officer of Ooba Group. “Once you have understood and worked to meet the criteria, there are strategic measures that one should take.”

Tips to get you to homeowner status

Know your credit score and what you can afford. Your credit score is one of the most important factors that banks take into consideration. To qualify for a bond, you need a credit score rating of 600 or more.

“A healthy credit score indicates to the bank that you are able to meet your debt obligations on time each month. The better your credit score, the better your chances of securing a home loan – and at a low interest rate,” said Dyer.

“Before you even start shopping around, make sure that you know your credit score and what you can afford. The Ooba Bond Indicator is a free online affordability tool that allows you to check your credit score and establish what you can realistically afford in minutes.”

If your score is too low, check your credit report for errors and pay your bills back in full and on time. If you have no credit history, start by opening small accounts and paying them in full and on time. “You can check your credit score every three to six months,” said Dyer.

Get pre-approval first

Increase your chances of home loan success by becoming pre-approved before applying for a home loan. “The process involves checking credit scores and affordability to determine what the optimal price bracket is for your home purchase, and therefore what home loan amount you qualify for.

“The process can be completed in minutes by using free online tools, or a more thorough assessment can be made by talking to an expert home loan consultant. Either way, once the process is completed you are given a pre-approval certificate, valid for 90 days that proves to an estate agent or seller that you have the funds necessary for the home purchase.”

Pre-approval doesn’t mean that the bank has approved you, but it does greatly increase your chances by up to 90%, as we’ve observed from applicants with Ooba’s pre-approval certificates.” said Dyer.

Save up for a deposit

Although banks are increasingly approving 100% home loans (home loans without a deposit), you can significantly boost your chances of being approved by putting down a deposit of around 10%.

“Not putting down a deposit doesn’t mean that your application will be automatically rejected, but it is a sign of your commitment to the purchase and demonstrates your capacity to save to the banks – the higher your deposit, the less of a risk you are,” said Dyer.

In addition to boosting the chances of a home loan application being approved, putting down a deposit increases your chances to negotiate a better interest rate on your home loan.

Use a home loan originator to increase your chances

Once all the home loan lending criteria are met, the home loan application journey can begin.

“The most effective way an applicant can ensure that their home loan is approved is by applying to multiple banks. More applications increase the chances of approval (at the best possible interest rate), and this is achieved by using a home loan originator,” said Dyer.

“When applying for a home loan, you’d assume that your first stop would be applying to your own bank directly. However, the banks’ lending criteria is regulated by the National Credit Act and therefore, there is no guarantee that your bank will be able to approve your home loan.

“We recommend spreading your risk by making use of a home loan originator to increase your chances of being approved – at the best possible interest rate.”

Get your admin in order

Finally, one of the key factors when applying for a home loan is the administration which Dyer says is pertinent to being approved. “A lot of paperwork such as bank statements and proof of income is required when applying for a home loan.

“By working with a team of experts, you can ensure that all your paperwork is right the first-time round. This saves you time and avoids any unnecessary delays,” Dyer said.

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How to boost your chances of being approved for a home loan in South Africa