Buying a home can be exciting, but it can also feel overwhelming when you are unsure how much you can afford or where to begin. One of the best places to start is with home-loan pre-approval.
Pre-approval gives you an indication of how much a bank or financial institution may be willing to lend you, helping you understand your potential property budget before you start viewing homes.
But what does the process look like?
Here is a simple step-by-step guide to help you understand what to expect.
Step 1: Check Your Financial Position
Before applying for pre-approval, it is a good idea to have a look at your own finances.
The bank will generally consider factors such as:
- Your monthly income
- Your existing debts and monthly repayments
- Your living expenses
- Your credit profile
- Your employment and income stability
- Your available deposit
- Other financial commitments
This is an important first step because the amount you may qualify for is based on your overall financial position, not simply on your salary.
Step 2: Gather Your Documents
Once you are ready to apply, you will generally need to provide documents to support your application.
Depending on your circumstances and the financial institution, these may include:
- Identity document
- Proof of income
- Recent payslips
- Recent bank statements
- Proof of address
- Details of existing debts and financial commitments
- Proof of your deposit or available funds
If you are self-employed, you may need to provide additional financial information, such as financial statements or other supporting documentation.
Having your documents ready can help prevent unnecessary delays during the application process.
Step 3: Apply for pre-approval
You can generally apply directly through a bank or make use of a bond originator.
A bond originator can assist you with the application and may submit your information to several financial institutions. This can allow you to compare potential options rather than approaching only one bank.
At this stage, you will provide your personal and financial information, and the relevant financial institution will assess your application.
Step 4: The Bank Assesses Your Affordability
Once your application has been submitted, the financial institution will assess your financial position.
The bank will look at your income, expenses, existing debt, credit profile and other relevant information to determine what level of home-loan repayment may be affordable for you.
For example, two people earning the same salary may qualify for different loan amounts because their existing debts and monthly expenses may be different.
This is why pre-approval is based on your individual financial circumstances.
Step 5: Receive Your Pre-Approval
If your application meets the relevant criteria, you may receive a pre-approval or indication of the amount you could potentially qualify to borrow.
For example:
Potential home-loan amount: R1,350,000
Available deposit: R150,000
Potential property budget: Approximately R1,500,000
This is only an example. Your actual loan amount and property budget will depend on your financial circumstances and the financial institution's assessment.
It is also important to remember that your total purchasing budget should take other costs associated with buying a property into consideration.
Step 6: Start Looking for Your Property
This is where pre-approval can make your property search much easier.
Instead of looking at properties across a wide range of prices, you can focus on properties that fall within a realistic budget.
For example, if your potential purchasing budget is around R1.5 million, you can concentrate your search on properties around that price range rather than viewing properties that are significantly more expensive.
This can save time and help you avoid falling in love with a property that may ultimately be outside your affordability range.
Step 7: Find Your Ideal Home
Once you know your budget, you can start viewing properties with a clearer idea of what you can afford.
At this stage, it is important to consider more than just the purchase price.
Think about:
- Monthly bond repayments
- Rates and taxes
- Levies, if applicable
- Insurance
- Maintenance
- Utilities
- Other ongoing household expenses
A property may technically fall within your maximum approval amount but still be more expensive than you would comfortably like to pay each month.
Your maximum affordability is not necessarily the same as your comfortable affordability.
Step 8: Make an Offer
Once you have found a property that suits your needs and budget, you can submit an Offer to Purchase (OTP).
The OTP is an important legal document that sets out the terms and conditions of the proposed property transaction.
If the seller accepts the offer, the purchase process moves forward.
Step 9: The Final Home-Loan Assessment Takes Place
This is an important stage to understand.
Pre-approval does not mean that your home loan has been finally approved.
Once you have a specific property and an accepted Offer to Purchase, the financial institution will conduct its final assessment.
This may include assessing the property itself and arranging a valuation to determine whether the property provides sufficient security for the proposed loan.
The bank may also reassess your financial circumstances before making its final lending decision.
Step 10: Final Approval and the Transfer Process
If the home loan is finally approved and all the necessary conditions are met, the transaction can proceed towards registration and transfer.
The relevant legal and property professionals will guide the buyer and seller through the remaining steps until the property is registered in the buyer's name.
What Should You Expect from the Pre-Approval Process?
The pre-approval process is not something buyers should be afraid of. It is simply a way of understanding their financial position before making one of the biggest purchases of their lives.
The process can generally be summarised as:
Check your finances → Gather documents → Apply → Affordability assessment → Receive pre-approval → Search for a property → Make an offer → Final bank assessment → Final approval → Transfer
The biggest advantage is that you start your property search with a much clearer understanding of your potential budget.
One Important Thing to Remember
A pre-approval is an indication, not a guarantee.
Final home-loan approval remains subject to the financial institution's full assessment, the specific property being purchased, its valuation and the buyer's financial circumstances at the time of the final application.
For prospective homeowners in Mokopane and surrounding areas, Boltman Group encourages buyers to understand their affordability and prepare financially before starting their property search.
Knowing your numbers first can make the journey to finding your new home a lot clearer, more realistic and less stressful.
