home loan application process

The home loan application process in South Africa

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Obtaining a home loan is one of the most important steps toward securing your new home. Here’s a rundown of the home application process.

Article summary

  • Obtaining a home loan is the most important step in the home buying process. Getting prequalified can help by giving you a solid idea of what you can afford, which will improve your chances of approval.
  • Your chances of home loan approval are determined by, amongst other things, your credit record and the size of your deposit.
  • Your goal is to secure a home loan with as low interest rates as possible.
  • evo, makes the process easier by applying to multiple banks on your behalf, comparing home loan deals to find the best one for you.

Obtaining a home loan is one of the most important steps toward securing your new home. Once you’ve got your home loan approved, you really can breathe a sigh of relief, knowing the most important part of the home-buying process has been successfully completed.

That’s not to say there won’t be a number of other documents to sign and additional fees to pay, but home loan approval is really the ultimate objective. So, how do you go about achieving this? We provide a rundown of the home loan application process.

Get prequalified

It’s not compulsory, but getting prequalified is highly advised. It provides you with a realistic idea of what you can afford, so you can go house hunting with more confidence knowing what your price range is. This will improve your chances of approval. Over 90% of home loan applications submitted with an evo prequalification are approved.

You can prequalify by contacting an evo prequalification expert.

The offer to purchase

Before you apply for a home loan, you find the home you want, and then you and the seller sign the offer to purchase, an agreement between buyer and seller which stipulates conditions to be met on both sides.

The offer to purchase should make allowance for you to obtain the necessary funding, although bear in mind that the offer to purchase might include a 72-hour clause, which means the seller can still market the property and, if they receive a better offer, provide you with 72-hours’ notice to get your affairs in order and avoid losing out on the home.

So as soon as you sign the offer to purchase, you should work on getting the home loan right away, so you’ll have the funds to back the purchase.

Applying for the home loan

This is it, the moment of truth, where you apply for a home loan from the lender — usually a bank — to cover the cost of purchasing the home.

What documents do I need to apply for a home loan?

The documents usually required for a home loan application include:

  • Offer to Purchase
  • Identity document
  • Latest payslip
  • 6 months consecutive payslips if commission/overtime is earned
  • Latest 3 months bank statements

How long does it take for a bank to approve a home loan in South Africa?

Now it’s the wait to see if your home loan gets approved. This will usually take around one week, although it can be delayed if applicants fail to meet certain requirements.

Factors that play a role in whether your home loan will get approved include:

  • Your credit score: The single most important factor. This is a three-digit number that tells the bank how much of a risk you are. It’s based on analysis of your financial history, such as payments owed, credit applied for and so on. Before applying for a home loan, you should do what you can to clear your credit record. A credit score above 600 gives you a solid chance of home loan approval.
  • The size of your deposit: Purchasing a home may require you to pay a percentage of the purchase price up front. The more money you put into this deposit, the higher your chance of home loan approval. The bank considers you less of a risk if you can put down a large deposit on the property.
  • The value of the property: The value of the property you are purchasing can determine whether your home loan is approved or not. If the value of the property is less than the home loan amount you are applying for, the bank may not approve the loan, or may approve a lesser amount.

This is where the services of a bond originator such as evo can smooth out the process for you. You provide them with the documentation, and they apply to multiple banks on your behalf.

Applications that get rejected by some banks might be accepted by others with different lending policies. Furthermore, the banks who do approve your home loan will vary in what interest rates they‘re willing to offer. evo can compare those rates to see which gets you the best deal.

Can I get a home loan without having to pay a deposit?

Deposits help, but lacking one is not as harmful to your chances as it used to be. Supply currently outstrips demand in the housing market, so banks are more willing to lend, and for first-time buyers they offer a special deal, the 100% home loan. This is a home loan that doesn’t require a deposit, making home ownership a more realistic option, especially for first-time buyers.

What does the interest rate on your home loan mean?

If your home loan is approved, the bank purchases the home for you, and you pay them back in monthly repayments, but you also have to pay interest; an additional amount on top of each monthly repayment.

Your interest rate depends on:

  • How much of a risk your bank considers you to be
  • Market forces

Your interest rate usually improves if you pay a higher deposit and if your credit score is good. Paying off your bond as quickly as possible, by putting repayments into it whenever you get a chance, will also reduce the interest rate.

Using a home loan comparison service like evo will also help you get a favourable interest rate, as they apply to multiple banks on your behalf to see which offer the best rates.

Variable versus fixed interest rates

After your bond is registered, you have the option of asking the bank to fix your interest rate. A variable interest rate means the interest rate on your home loan will rise and fall with the market, while a fixed interest rate stays the same regardless of market forces for an agreed period of time.

Each has pros and cons. Variable rates can be beneficial if the market rate drops and yours drops too, but detrimental if the rate rises, increasing your interest payments.

If you’re someone who prefers to be able to plan a tight budget, a fixed interest rate will give you that certainty, as the monthly repayment amount won’t fluctuate. Taking a variable rate means you’re willing to gamble on the market working in your favour.

Your home loan is approved! Now what?

Home loan approval may not be the end of the process, but it certainly takes a weight off your shoulders. What follows is a number of legal processes where lawyers get involved. The home seller’s bond is cancelled, and a new bond is registered and transferred to you, the end result reflecting on the title deed.

This requires a number of legal fees and signatures, and usually takes around three months. But you can rest assured you’ve done the hard part, your home purchase is funded.

If you are just thinking about buying a home, or are ready to put in an offer, evo gets you the best deal on your home loan – for free. To make the home-buying process that much easier, evo also offers a range of home loan calculators to help make the home-buying process easier. Get prequalified for a home loan with evo, then, when you’re ready, you can apply for a home loan with evo.

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