We have reached Day 9 of the #21DayPropertyChallenge. Today we are going to be exploring how to obtain bank financing. One question that is continually asked, “Should I apply for a loan at my bank or use a Bond Originator?”
It is widely accepted that bank financing is best way to finance the purchase of property, but this comes with certain criteria in South Africa. Whilst there are many scenarios that may be present, we will look at some typical examples in the list below:
- You need to have a constant income
- Salaried employees can prove their income with relative ease. This is done by providing Employer’s salary slips and bank statement’s to show this money coming into their bank statements. (Generally, 3 months is sufficient)
- Self-employed people would need to prove that they are paying themselves a salary that is sufficient to cover their bond. They will also need to provide the company’s income and expense statements to justify that the company has been producing money historically. Typically the banks would require 6 months of statements and salary slips for self-employed people
- Commission earner would generally need to provide 6 months of salary slips. The banks would take an average of the 6 months earning to work out the person’s affordability.
- When applying for financing, your credit score is extremely important. Are you a reliable payer? How certain will the bank be that you will fulfil your obligation to repay your loan?
- What are your current expenses? The banks would take into consideration your income to expense ratio. How much money are you spending each month and is there any disposable income?
- What debt do you have against your name? Do you have other home-loans, car financing, credit card debt, credit at retail stores, short- term loans, etc?
Applying for financing from a bank can be quite a daunting task. If you intend to grow your portfolio, this is a process that you should get familiar with.
Each bank will have a different process and form to complete, but the general documentation is the same.
- You will need to provide FICA documents, ID document and proof of residence.
- Proof of income, ranging from 3 to 6 months
- Bank statements to justify income and expenses
- Completed offer to purchase for the property you intend to buy.
This can be quite an onerous task if you are applying to several banks, as each bank has its own document to complete.
People tend to believe that if they apply to the bank that they bank with, that they would receive preferential treatment and preferred interest rates. This is not always the case. Thus, it is highly recommended to apply for a loan from all potential banks.
As mentioned, the application process for bank financing can be quite time-consuming and not to mention the submission, follow up and negotiation process. The advantage of using a bond originator is that all of this admin process is taken care of, by them.
Usually, they have 1 application form and require 1 set of documents from you. They do all of the submissions and justifications to all of the banks. The following up and negotiate on your behalf and present you with the best offers. Once you have offers, they can also go back to your personal bank and see if they can improve on their original offer.
It’s like having a personal assistant do all of this process for you. Best of all, this comes at no cost to you. The bank will cover their fee.
Finding and building a relationship with a bond originator that you can trust is paramount for you as a property investor. These are team members that you should always have on your team.
We have built us a relationship with Ooba Bond Orginators as we believe that they offer very personalised and professional services. We particularly enjoy their online calucaltions for every thing from monthly repayments to transfer costs.
If you are serious about starting or expanding your property portfolio, now is the ideal time to get your finances in order. Ooba Home Loans offers a pre-qualification. Why not check how much you can qualify for now and when the lock-down has been lifted, you’ll be 1 step ahead of the others. You can immediately start viewing properties within your affordability range.
Check out their pre-qualification page here:
If you need any assistance with the process or need to gain some further insight, why don’t you head over to the forum and make a comment in there. The community will be ready to help you out.
Give this challenge some serious thought and we will be expanding on property financing in future challenges. Keep an eye on your inbox.