How to apply for a home loan in South Africa

 ·4 Feb 2023

Applying for a home loan can be a daunting task, especially for those looking to buy for the first time, but with the right information and preparation, it can be a much smoother process.

South Africa has experienced a tumultuous few years of economic challenges and significant disruption, and the new year was met with heightened inflation, interest rates and living costs.

The outlook for 2023 cannot be described as rosy, but it’s certainly not all doom and gloom, said  Yael Geffen, the CEO of Lew Geffen Sotheby’s International Realty.

A major concern for property experts, including Geffen, is the likeliness of more interest rate hikes.

“Following a record low of 3.75% in May of 2020, the interest rate has been steadily rising, with the South African Reserve Bank (SARB) raising the prime lending rate by another 25 bps to 10.75% in January – the 8th consecutive rate hike since policy normalization started in November 2021,” he said.

Buying a property during high inflation can be challenging, especially for first-time buyers. However, with the right approach, it is still possible to make a successful property purchase during high inflation, said Only Realty Property Group’s managing director Grant Smee.

Smee added that in the current market, before considering the steps below, prospective property buys would be wise to price in interest rate hikes – by looking to buy at 70% to 80% of your affordability – and ensure you have a deposit saved up before deciding to go on the hunt for a new home.

Several accredited financial services providers have outlined the process of applying for a home loan. By following these steps, you’ll be well on your way to successfully applying for a home loan in South Africa.

The steps these institutions outline to help you through the process are listed below.

Determine how much you can afford

Before you begin your home loan application, you must know how much you can afford to repay each month. This will help you narrow your search for a suitable property and ensure you don’t over-extend yourself financially.

This can be done by using an online bond calculator of your choice – giving you an estimate of what you can afford.

Get pre-approved

Many banks and financial institutions offer pre-approval for home loans. They will assess your financial situation and indicate how much you may be able to borrow.

This can be useful when searching for a property, as it will give you a better idea of your budget. It will also provide you with a prequalification certificate that you can show to estate agents to fast-track the process of finding a suitable home.

Find a home

You need to have a property in mind when you apply for a home loan so that the loan institution knows what you need.

Chat with an estate agent and look at the property for sale before you start the application.

Try to attend house viewings instead of just relying on photos of the property, so you can get a more accurate picture while getting a feel for what it’s like to live in the home. Make sure that the property that you want to make your home will be within your budget.

Make an offer and sign the contract of sale 

Once you’ve found a property you’re interested in, you’ll need to make an offer to the seller. The offer should include the purchase price and any conditions you may have.

Once the seller has accepted your offer, you’ll need to sign a contract of sale, which includes the purchase price, the deposit, and the date of transfer.

Gather your documentation

You’ll need to provide various documentation to the bank or financial institution when applying for a home loan – including proof of income, such as payslips and bank statements, as well as proof of identity and a copy of the contract of sale.

Choose the correct type of loan

Several home loans are available in South Africa, including fixed-rate loans, variable-rate loans, and adjustable-rate mortgages. Choosing the right type of loan for your needs and budget is essential.

Compare rates and fees

Different banks and financial institutions will offer different interest rates and fees for home loans. It’s important to compare the rates and costs of various lenders to ensure you get the best deal possible.

You can borrow up to 105% of the property’s purchase price, and if you or your spouse are first-time homebuyers, some banks offer a 50% discount on the bond registration costs, provided your home loan amount does not exceed R3 million.

Submit your application

After the contract of sale has been signed, you’ll need to submit your home loan application to the bank or financial institution. This will include your personal and financial details and your documentation.

Wait for approval

The bank or financial institution will assess your application and let you know whether or not it has been approved. If it has been approved, the bank will also let you know the terms and conditions of the loan, including the interest rate and repayment period.

Close the loan

After your application has been approved and the terms and conditions of the loan have been agreed upon, the loan will be closed. This means that the money will be transferred to the seller, and the property will be transferred into your name.

Read: Prices for these properties in South Africa are rising faster than the rest

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