(Last Updated On: 27th Oct 2020)

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Financial institutions are reluctant to offer more than 70

Financial institutions are reluctant to offer more than 70%

Whether the renovations will indeed increase the value of the home enough to cover the additional loan amount.
To obtain a home loan from a reputable financial institution is based on your credit status, the deposit, and the pre-approval of the home loan (of which the vast majority of people do), it is important to note that financial institutions generally do not offer more than 80% loan.

Therefore, a deposit is required of at least 10-20% of the purchase price, before approaching a bank for the loan. Some financial institutions do offer 100% home loans for starter packages. Note the seller should ensure that the municipal rates and taxes are paid up to date. The seller must produce an electrical compliance certificate.

With building loans, financial institutions are reluctant to offer more than 70% of the cost of the building contract. The purchase price includes land(site) and the cost of the building. If the land is paid in full, this can be used to secure a loan for the cost of the building. Before one can secure a building loan, plans must be presented along with at least three quotes from a reputable building contractor (the building contractor must present proof of all risk insurance cover and NHBRC and enrolment certificates), an engineer’s report is most often required – this can be obtained through the contractor, the design professional or directly from a certified structural engineer. Coupled with this, one must present a comprehensive document outlining how and when the building contractor will be paid.

With the interest rate increases, it is important to ensure that whatever the rate is, at the time of purchase, an allowance should be made for at least 5% increase, in your budget. This will ensure, adequate provision for any shortfall payments. There is nothing worse than deciding to buy a dream home and then taking financial strain because of it. It is preferable to buy a lower price and plan to buy higher at a later stage, than pursuing a deal out of your specific financial ability. (This can be addressed by applying for a fixed rate) bond, as explained later on). It is the norm today, to obtain a pre-approved home loan before embarking on buying a house. It is a strong indication of the lending rate a financial institution is willing to offer the client.

Other factors playing a considerable influence on your budget, are personal commitments (monthly expenses) like household, vehicle finance, dependents, and of course, financial history, which are all encompassed in the new terms of the National Credit Act.

Once a property is found, it is not improbable for the bank to increase the value of the pre-approval loan offered based on the value of the property. This is not often the case, but it’s always good to ask. At the time of ready to purchase, the bank will require other documentation, such as a copy of the sale agreement, identity documents, marriage certificate and ante-prenuptial agreement (where relevant), water and lights or rate account and can be used as proof of residence document, bank statements dating at least three months previous, latest payslip and proof of income. This relates to an individual – companies buying properties will need to present audited accounts as well as personal financial documentation on each of the members or directors.

In the case of an existing home, while applying for an additional bond or an extension to the existing bond to renovate, the bank will send a valuator to the property to ascertain whether or not the loan amount applied for will firstly cover the costs of the proposed renovations, and secondly, whether the renovations will indeed increase the value of the home enough to cover the additional loan amount. The evaluator or assessor will take into account recent property sales in the area, as well as aspects such as scalability of the home and viability of proposed renovations.

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