Buying a property typically entails an application for a mortgage bond or a home loan to finance the purchase. This needs to be stipulated in the offer to purchase as a suspensive condition, which means that the sale cannot proceed unless the bond has been approved.
Once all credit and FICA criteria have been provided to the bank, the bond approval procedure can begin. Initially, the bank’s approval is limited to the value of the bond and this is referred to as an approval in principle. The final approval is subject to the bank finding enough value in the property. In terms of the National Credit Act No. 34 of 2005, the bank has to provide the buyer with a detailed quote outlining the loan’s terms and conditions and the buyer has a legal right to decline an unaffordable quote. So the bond approval process is dependent upon not only the bank’s approval, but also the buyer’s acceptance of the terms and conditions set out by the bank.
The offer to purchase may make allowance for this process, but needs to specify a period by which the bond approval needs to be in place. The timeframe for this can be increased, either at the discretion of the estate agent or the seller, or even automatically.
TIPS TO SUCCESSFULLY APPLY FOR A BOND
It is possible for a bond application to be rejected. A number of factors, such as a negative credit score or affordability restrictions, may lead to a bond not being approved. Before applying for a bond there are a few things that you can do to improve your chances of approval.
Don’t waste your time looking at unaffordable properties. To avoid this, it is necessary to determine an affordable price range. A financial advisor specialising in real estate may be able to assist you in determining what you will be able to afford based on your unique circumstances. A combination of monthly living expenditures, current debt obligations, and joint net surplus income is used to calculate monthly repayment affordability.
Prequalification is a hassle-free way to ensure that a bond application will be approved. The addition of this step reduces the uncertainty and stress of bond application after finding a property. Prequalified buyers are also in a more favourable position in terms of negotiating with sellers.
Your credit history findings show your payment and debt history. Frequently missing payments or having multiple outstanding loans may negatively impact your credit rating and bond application. However, if your credit history is in good standing, the bank will appraise the property and, upon satisfying all the necessary conditions, approve the bond application.
DELAYED BOND APPROVAL PROCESS
The bond approval process may appear to be straightforward. However, there are factors that can delay this process such as, for example, when an insufficient bond amount or unfavourable bond interest rate is offered.
THE INTEREST RATE IS UNFAVOURABLE
An unfavourable interest rate may be problematic, as the subject to bond approval clause has to be met. However, as per the National Credit Act No. 34 of 2005, the buyer may decline the bond offered by the bank within five days of receipt. In addition, to protect the buyer, it may be wise to include a clause specifying the required interest rate. But in practice, setting a precise interest rate may be tricky. Instead, an approximate interest rate above prime is typically provided as a guideline.
THE BOND AMOUNT IS INSUFFICIENT
It may be that the bond is approved, but for a smaller sum than needed to continue with the purchase. In such an instance, the individual will be given a deadline to obtain the outstanding money. If the buyer fails to raise the balance, the suspensive condition has not been met. As a result, notwithstanding the approval of the bond, the sale cannot proceed as the purchase price has not been met.
Our ESI Attorneys app is releasing two exciting new calculators shortly, being the Bond Affordability calculator and the Additional Payment calculator. These will assist with calculating the amount of a bond which an individual can afford, based on their income and expenses. The Additional Payment calculator will help you calculate how quickly you can finish paying on your bond if you add an additional monthly payment over and above the interest rate instalment.