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You can buy your dream home, as long as it’s within your means and you can afford to repay the loan
Readers ask
Justice Phaswana: “Can I afford a house? My basic salary is R15 000, and I pay R2 500 for my car and receive a housing allowance of R2 350. I would like to know if I qualify for a bond.”
Palesa Lebatla: “How much do I need to earn to qualify for a home loan on a single income? How much should I save up as a deposit for the house?
“What is the criteria to qualify for a 100% bond?”
The expert answers
Albertus van Staden, head of credit FNB Housing Finance, has the following advice:
“There are a few things we need to factor in when we assess your ability to repay a home loan. The affordability assessment takes into account your income and expenses to calculate whether you will be able to repay your mortgage.”
Income
“A typical income is your monthly salary, but all salaries are not the same. Some people receive a fixed amount monthly, while other people receive commissions as part of their job.
“It may also include other forms of income, like allowances, overtime and bonuses.
“When we estimate what income will or can be used on your affordability assessment, we need to know how likely you are to get this.
“For example, we know that bonuses are paid mostly once a year, so we cannot assume that you will receive this every month.
“We know that the fixed-income part will not deviate too much and 100% of this value will be used as income.
“The variable incomes (like commission and overtime) are not the same each month and we either use a lower portion of this amount or use at least a three-month average of this income.
“The important part here is that while everyone wants to show they earn a great deal of money, you also need to be realistic when you fall short of this at any given time.
“For example, you may not be able to work overtime every month. Should this be the case, your income will be lower for that particular month (during economic downturn conditions, some employers limit the amount of overtime that can be taken).
Expenses
“This is the part where most people underestimate their true expenses until they do a proper budget. We can split the expenses into three broad categories:
1 Credit expenses are your monthly instalments paid from debt obligations you already have – like your car instalments or monthly credit card repayments.
2 Living expenses can be categorised as essential expenses. This includes transport, food, education, medical, water, electricity and maintenance.
3 Other expenses are for things like prepaid airtime, insurance premiums and satellite TV.
“These are not necessary expenses and can be scaled down.
“Banks then determine your risk profile to calculate the appropriate interest rate they are willing to charge you.
“Based on this rate, we then calculate your monthly repayment over the term of the loan. This will then form part of the expenses side in the affordability calculation.
“If you do not have a deposit, your risk rating is likely to be higher. This results in a higher interest rate and repayment that the banks may charge.
“Usually, the bigger the deposit, the lower you can expect the interest rate to be charged.
“Now that we have your current affordability calculated to some extent, have you factored in any buffers?
“For example, when interest rates increase by 1% over the next year and your car instalments are linked to a variable rate, do you have enough cash available to cater for the increased instalment?
“On a loan of R700 000 over 20 years, a 1% increase in rates can cost you about R500 a month extra.
“Also, as part of the mortgage loan agreement, you are likely to have homeowners’ cover so that the property is insured (if it is freehold). You will also need life insurance to ensure that your property is taken care of for your loved ones in the event that you die.
“These are additional premiums that will affect your affordability.
“Other expenses you may not have had previously are levies from a sectional-title scheme or a homeowners’ association.
“Municipal rates and taxes also need to be factored in monthly as each homeowner will become liable to pay these.
“When buying a house, there are costs involved that need to be paid by the purchaser.
“These are bond and transfer costs, and any transfer duties that the government may charge. This can add up to between 5% and 11% of the purchase price you will have to pay.
“If you buy a property valued at R400 000, you are likely to pay about R20 000 in transfer and bond fees.
“There are other initiatives from government that help first-time home buyers. One such incentive is the Finance-Linked Individual Subsidy Programme.
“Given the above, the most important factor is that you have to be honest in declaring your income and expenses.
“We all want to own that dream home, but it’s not worth it to see your home repossessed when you cannot make the monthly repayments. If you really cannot afford your dream house, it would be better for you to save for a bigger deposit, or to look for something that is within your means,” says Van Staden.
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