Home Buying Step-by-step Guide

September 24, 2007

It is important to enter the property market with a good understanding of how a property purchase works, how much you can afford to borrow, all the costs that are involved etc.

Step 1 – Determine how much you can afford

· Know what you can afford.

· What you can afford while interest rates are relatively low is not your most important criteria.

· Most homes are re-possessed during times when interest rates are high and monthly installments become difficult to handle. Very few people can afford to pay more than 30% of their monthly income on bond repayments. Consider taking a loan for less than what you can afford at the moment.

· Try to be disciplined to set up a savings plan for unforeseen expenses by not over committing yourself on bond repayments. What will happen if your car needs repairs or maybe you will need money for your child’s school fees etc.

· Determine if you would still be able to afford a mortgage if interest rates go up with 5%.

Step 2 – Determine how much you can qualify for

Major banks will grant you a bond of up to 25 times your monthly combined salary. Your monthly repayments may not exceed 30% of your joint monthly income (before any deductions).

· In accordance with the National Credit Act banks must also determine each applicant’s affordability of the loan. This means that, after all monthly expenses have been paid, you would still need to afford this loan.

· Phone a GPF consultant at 086 110 6204 to help you establish exactly for how much you can qualify for

Step 3 – House Hunting

· Use the Internet, estate agents, trade shows etc.

· Consult magazines like Property Trader, PropLink as well as the housing section of local newspapers

· Find out as much as possible about the residential area you’re interested in:

· Is it a safe area (criminal activities etc.) ?

· Is it in close proximity of schools, shopping centre, hospitals etc?

· Does it have any recreational facilities (parks, golf courses)?

· Future potential development?

· Drive through the area, go to the local shopping centre. Jot down positives and negatives. This will give you a good idea of the general condition of the area.

Step 4 – Determine how much to pay for the property

· Many times a 5-10 percent cushion is built into the sales price of a home to allow negotiation of a sales offer.

· Make use of a Comparative Market Analysis (CMA) report. This will disclose information on recent selling prices in a residential area, specific street etc. to assist you in getting a better idea of the market value of properties in an area.

· Such a report can be obtained from a GPF consultant at 086 110 6204

Step 5 – Offer to purchase

· The buyer submits a signed offer to purchase to the seller, which the seller can accept or reject.

· On acceptance by the seller, your offer becomes a legally binding contract.

· The contract set out certain terms of the contract such as date of occupation, occupational rent, purchase price, conditions of sale, etc.

· During this stage you will experience pressure from some estate agents to have an “All In One” service, which includes the agent arranging your bond (mortgage) financing.

· You, and you alone can decide if you want to arrange your own finance or through a bond broker (originator) of your choice, or not.

· Getting a Loan From Your Estate Agent or the Mortgage Company in Your Real Estate Agent’s Office May Not Save You Any Money.

· Most bond originators will pay your registration fees for example, whereas your agent might not be prepared to give up some of his commission.

· It has been our experience that some Estate Agents are not educated enough and do not have the experience to originate mortgage loans. They spread themselves too thin and it ultimately hurts the buyer. Estate Agents sell property and Mortgage/Bond Companies originate mortgage loans/bonds.

Step 6 – Choosing a Home Loan

· Compare different banks to decide on your lender of choice.

· Choose between the following interest rate options:

· fixed interest rate (where your rate remains unchanged over a certain period)

· variable rate (interest rates goes up and down according to the banks prime lending rate)

· capped interest rate (your interest rate will not increase above a specified rate over a certain period)

· combination of fixed and variable (where part of the interest rate is fixed and part is variable

Step 7 – Applying For a Home Loan

· Home loans can be obtained quickly and effortlessly with the right people on your side.

· Contact a GPF Mortgage consultant to simultaneously apply at all the major banks and help you save money.

· You can virtually obtain a home loan from the comfort of your home.

· Your goal is to save as much as possible on interest, because saving on interest has the same net result as earning interest.

· You can also go directly to a financial institution of your choice.

For more information on financing your home why not contact one of our mortgage advisors to learn more about what you’ve read. Talking to an expert can make the difference between getting into the home of your choice or having to rent forever.

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The Bond Financing Process

August 26, 2007

Day 1: Submit an application through your bond broker

  • Bond Broker pre-qualifies client for loan.
  • Request and motivate for rate discounts for clients from various financial institutions.
  • Contacts client with results and client makes a preliminary decision on lender of choice.
  • Bond Broker submit fully completed application with supporting documents to financial institution.
  • Bond Broker awaits AIP (approval in principle) or decline notification from financial institution.
  • Approval in Principle – Client is approved subject property valuation.
  • Decline – Clients application declined due to various factors.

Day 2-5: AIP (approval in principle) issued

  • Credit department verifies information and does credit checks.
  • Bond Broker receives AIP or decline notification.
  • AIP (approval in principle) – client is approved subject to a valuation to be done on property. This is not a final approval.
  • Decline – Client’s application declined due to a variety of reasons. Bond Broker will reassess application for further assistance.
  • Bond Broker informs client of decision.

Day 7-8: Formal Quotation

  • A property assessment (valuation) is completed by the bank – the valuation takes place either physically or through a so-called desktop valuation.
  • The bank will send a formal QUOTATION (final approval) through to the Bond Broker, the estate agent and the client.
  • The Bond Broker informs client and explains all the details of the quotation. The client then accepts or rejects the quotation.
  • The bank will forward the loan agreement to the attorneys and instruct the Registering attorney to attend to the registration of the bond.

Day 10-12: At the attorneys

  • The home loan bond documents are prepared.
  • Client contacted by attorneys to come and sign documents.
  • Required to pay transfer duty and other costs.
  • Attorney lodges transaction with Deeds Office.
  • Registration attorney confirms registration to buyer and to the bank.
  • Seller’s bond cancelled (if applicable) and settled.

Day 15-18 : At the bank

  • The attorney will advise bank of registration.
  • The bank will disburse the money.
  • The transferring attorney will advise client that the property has been registered in their name.
  • Bank will confirm monthly installment due in writing.
  • First monthly installment due within 30 days of registration date.
  • The Title Deed & home loan document sent from the attorney to the bank for safekeeping.
  • With the new National Credit Act this process can take up to 3 months and longer. See factors that delay registration.

The legal stuff

Phase 1 : The Transfer Attorney

  • The seller informs the Transferring Attorney to attend to the transfer of ownership of the property into the buyer’s name.
  • The transferring attorney will request the title deed and cancellation figures from the seller’s existing bank (if applicable).
  • A Rates Clearance Certificate will be requested from the local authority. No transfer is possible without such a certificate.=

Phase 2 : The Bond Attorney

  • When the bank approves the buyer’s loan and instruction will be issued to the Bond Attorney to attend to the registration of the bond.
  • The Bond attorney informs the Transfer Attorney of the amount available for guarantees and requests the draft Deed of Transfer.
  • This Deed of Transfer is necessary to get details about the purchase price, title conditions etc.

Phase 3 : The Cancellation Attorney

  • The Cancellation Attorney is instructed to cancel the seller’s home loan upon receipt of a guarantee for the amount owing.

Phase 4 : The Transfer Attorney

  • The Transfer Attorney receives the Title Deed and cancellation figures and sends a copy of the deed of transfer and the guarantee requirements to the Bond Attorney.
  • The Transfer Attorney will contact the buyer and seller to sign the transfer documents.
  • The buyer pays the transfer costs and the Transfer Attorney then pays the rates and taxes and the transfer duty.

Phase 5 : The Bond Attorney

  • The Bond Attorney prepares the home loan documents. The buyer signs the relevant documentation and pays the bond registration costs.
  • The Bond Attorney then issues the necessary guarantees and forwards them to the Transfer Attorney who prepares the mortgage bond documents for lodgment with the Deeds Office.

Phase 6 : The Transfer Attorney

  • Once the Transfer Attorney has received the guarantees, he will forward it to the Cancellation Attorney, who (cancellation attorney) in turn obtains consent from the seller’s bank for home loan cancellation.
  • Once all the documentation has been signed and the all the costs involved settled then the process can be finalized.
  • The Transfer Attorney contacts the Bond and Cancellation Attorney to lodge all documents simultaneously with the Deeds Office.
  • The documents includes the: home loan cancellation, transfer and new home loan documents.
  • The transfer Attorney attends to the registration of transfer of the property while the Cancellation Attorney attends to the cancellation of the existing bond of the seller and the Bond Attorney on the other hand sees to the registration of the new bond.

Phase 7 : The Deeds Office

  • The set of three registrations which has been submitted simultaneously and after being examined by the examiners in the Deeds Office, placed on preparation where the attorneys attend to any notes made by the examiners in respect of the documents.
  • This takes 10-14 working days.
  • On the day of registration the bank pays out the loan according to the guarantees issued.
  • Agent’s commission is paid to the estate agent.
  • The Transfer Attorney then forwards the Title Deed to the Bond Attorney/Bond holder who retains the same together with the registered bond document as secured.

LEGAL COSTS

You will be liable for the following costs:

  • A bank valuation and initiation fee.
  • Transfer costs (transfer duty, conveyance fees and stamp duty etc. to the transferring attorney for transferring the property into your name.
  • Bond registration fees which you must pay to the attorney registering your bond

Save on Legal Fees

For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za


    8 Step Financing Process (2nd,3rd,4th Bonds)

    July 31, 2007

    By converting the equity in your property into cash, you can improve your monthly cash flow in various ways.
    The money gets paid into your bank account and you can use it at your own discretion
    .

    Step 1
    Apply for a loan through your bond broker

    Step 2
    Bond application goes through a process of approval by the Financial Institutions Credit Division

    Step 3
    The financial institution sends out a valuator to assess the value of the property.

    Step 4
    Bond is granted, and financial institution advises Registering Attorney to register bond.

    Step 5
    The buyer’s Bond Account and Supporting Documentation are prepared by the Registering Attorneys for signature by applicant. Up to this step takes about 5 working days. At this stage one can apply for bridging finance where up to 80% of the loan amount will be paid out. No need to wait until registration.

    Step 6
    Once all the documentation is signed bond documents are lodged in the Deeds Office.

    Step 7
    The Deeds Office takes approximately 7-10 working days to check all the documentation before they are ready for registration.

    Step 8
    On Registration, the Bank pays out the loan amount. The whole process can take anything from 2-4 weeks, if there are no complications.

    For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za


    7 Questions You Must Ask When Applying for a Home Loan

    July 13, 2007
  • What is the interest rate on this mortgage?
    Be sure to ask for the annual percentage rate (APR) of the loan’s interest. The APR is usually higher than the originally quoted rate because of the additional fees involved in procuring a loan. You must beware of APR found in advertisements. Often these are used in bait and switch schemes to get customers in the door. Always ask for an itemized list of rates and fees.
  • What rewards will I get?
    Often lenders have reward schemes. Link your home loan to a Voyager or e-Bucks account. Get info on your lenders rewards schemes and make use of them.
  • What are the fees, if any, involved in locking in an interest rate?
    Interest rates are constantly fluctuating and it is possible that it could change between the time you apply for a loan and the time you close. Often you can “lock in a rate” that will keep your interest rate the same from the day you apply. Please make sure that you find out if there are any fees involved with this.
  • Is there a prepayment penalty on this loan?
    Prepayment penalties may be added to lower the loan’s interest rate. There are many types of prepayment penalties that can be added to a loan. Make sure that if your loan has a prepayment penalty, you are aware of the terms and conditions.
  • What documents will I need to have?
    This will depend on the type of loan you choose. Most loan applications will require full documentation of income, assets, debt payments, etc… If you apply for a building loan additional documents will be have to be submitted (building plans etc). A loan application in a companies name will require further financial statements, etc.
  • How long does it take to process a loan?
    It can take as little as two weeks, to as long as 60 days or more. Be sure to have the lender give you the most accurate timetable possible so you can determine how far out you need to lock your interest rate.
  • What might delay approval of my loan?
    If you provide complete and accurate information to the lender, the process usually runs smoothly. Be sure to tell your lender immediately of any changes to your income or any new debt or marital status while your loan is processing. There could be delays your lender discovers any undisclosed credit problems so be sure to be as accurate as you can.For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za

  • How To Afford A Mortgage

    July 10, 2007

    Minimum Cash Requirement

    Many times a 5-10 percent cushion is built into the sales price of a home to allow negotiation of a sales offer. Just remember that in a hot real estate market, the seller may not be anxious to accept a low offer and may reject the agreement on a home that you really want due to small differences. If you play the game, you must be prepared to lose and go on to the next property.

    You should try to get pre-qualified by a lender prior to shopping for a home. A pre-qualification is a strong marketing tool when making an offer that may contain many a number of seller concessions. Telling a seller that you are already pre-qualified for a loan makes the acceptance of a low offer much more palatable.

    How to Maximize Your Income

    Most lenders will require that you disclose your income from the previous few months and use this income to qualify you for a mortgage. They will ask for tax returns, or bank statements to verify the income. The lender will then apply a formula to the income to determine your ability to repay the loan. A common requirement is that the mortgage payment cannot be greater than 30 percent of the borrower’s gross monthly income.

    One way to expand your purchasing power is to obtain a low, low interest rate mortgage such as a variable rate mortgage. They may offer up to a rate of 2.5% percent under the going rates. The disadvantage to these types of loans is that the rates are subject to change as frequently as every few months. If your interest rate is linked to the JIBAR rate it will be subject to more regular changes. This type of loan can however add thousands to your purchasing power due to the low initial rate.

    If you don’t have the stomach for a variable rate mortgage, explore fixed rate type loans. The rate will stay the same over a certain period, after which you can renegotiate with your lender. The only negative is that if interest rates are going down, that you will increase your borrowing cost.

    Finding a Bargain Home

    One of the clichés of the real estate world is the most important thing to consider when buying a home is “location, location, location.” That also applies when trying to find a bargain in a home. Generally it is better to buy a “fixer-upper” in a terrific neighborhood rather than a great but bargain-priced home in a less desirable neighborhood. There are always bargains in run down areas, but while these houses may offer a lot of house for the rand, they will be difficult to sell and may have little or no appreciation despite the time, energy, and money you have poured into them.

    Forget about buying a home from the newspaper auction notices, they are difficult to purchase and better left to the pros. Instead foster a relationship with a real estate agent and remain loyal to that agent. You want to find a home that may need some cosmetic work but is basically sound. Estate sales are probably the best area you want to explore, and try to investigate listings that have been on the market for awhile. Keep in mind that the reason a property has been on the market for a long time is because it is less desirable for some reason. Remember, most every property has its price and will ultimately sell when the price/value ratio becomes attractive.

    If financially able, look to buy a home during periods of high interest rates or economic recession. During those times home prices may drop or the seller will be more amenable to accepting low offers. High interest rate periods don’t last forever, and when rates come down or the economy improves you can refinance for a lower rate and even take out some excess cash from appreciation.

    Credit Scores and Below Prime Loans

    Prior to the early 2000s home buyers had to have a very good credit history to qualify for a loan. Those who had auctioned off properties, repossessions, or bankruptcies in their history were told to wait seven years and to walk the straight and narrow credit path in the meantime. The good news, however, is that now many more people are eligible to obtain a mortgage albeit at a higher than the prevailing rate.

    During the 2000s credit scoring also came into effect. Credit scores attempt to classify a person’s credit history into one three-digit number ranging from 300 to 900. A credit score of 650 or above is deemed to be a “good” credit risk by many lenders, the higher the better. In fact, a credit score of 700 or above can allow for a 100 percent LTV loan at only a little higher interest rate. A score of 625 may be acceptable, but scores from 525 to 625 usually fit into the sub-prime loan category. A score under 500 makes it very difficult or impossible to obtain financing of any sort.

    Hidden Costs in a Mortgage

    Most every loan is going to have associated with it fees for insurance, valuation, etc. Most of these fees are commonly required amongst all lenders and they must give you a list of their costs associated with a mortgage. Despite the fact that the costs are disclosed, some lenders may include extraordinary “junk” fees in their costs that an unwary buyer may not recognize as an extra fee. At the time of a loan application lenders are required to give you a written closing cost estimate.

    First, determine if you’re rate are being loaded. Some lenders advertise artificially low rates to attract customers but load up on fees to compensate for a lower rate. A tip off to a lender that charges hidden fees would be a lender who advertises interest rates that are appreciably lower than the competition. Interest rates are very competitive and shopping for the very best rate may in fact work to your disadvantage. Differences in rates of 1/8th or 1/4th of a percent result in very little difference in a payment and may be offset by poor service and added hidden fees.

    Mortgage companies and fees. Mortgage companies often advertise that through their intervention the financial institution will subsidize the client’s bond registration fees. But, at what cost to the client? Saving R2 000 for example in bond registration fees, but ending up paying R200 000 more in interest is a great deal for the bank, but not for the client.

    Mortgage companies are often owned by a bank or an estate agency. The real issue is a serious lack of independence and conflict of interest. Clients have no guarantee that their mortgage application will be channeled to the lender that offers the best interest rate instead of to the one offering the broker the highest commission. These fees will be subsidized by the banks customers in the form of higher charges and higher interest rates.

    Always work with an mortgage firm that is independent from any bank and who’s services are FREE and without any premiums attached to the client.

    Correcting Past Credit Problems

    Contrary to what you may have heard, credit reports are for the most part accurate. Common last names and a “Jnr.” in the family does cause a few problems but credit reports identify people by their identity number, address, and name. If you have an issue with your credit report, credit-reporting agencies are required to attempt to resolve the problem. Most of the information has to be provided by the individual and they should stay in touch for as long as it takes, frustrating or not. There are two main credit repositories in South Africa: Trans Union, and Experian. These companies each hold a database of information and provide it to a more local credit-reporting agency that may actually be issuing the report. If you have a dispute, you can go direct to the two repositories to attempt to clear the issue. Their addresses are listed below.

    As mentioned before, credit scores in the 500 range can cause problems when attempting to obtain new credit. You can raise your score if the original information was incorrect, or you can over time improve your payment history, but it may take a few years of diligent pay history to appreciably raise your credit score.

    If worse comes to worse declaring bankruptcy may be your only answer, but despite its growing popularity, I recommend it only as a very last resort. A bankruptcy will stay on your record for years and make obtaining credit difficult. There are two methods to declare bankruptcy: Voluntary and Compulsory Insolvency (bankruptcy). If your creditors have you sequestrated, this is known as compulsory sequestration. If, however, you decide to have yourself declared insolvent, such act is referred to as voluntary sequestration.

    Should you not have yourself declared insolvent, but wait for your creditors to take the necessary action, there is a possibility that they will not succeed in their application for a court order. It may no longer be in their interest, on account of the fact that your assets are worth too little to them.

    In the absence of compulsory sequestration, your debt simply increases further (as a result of interest), and your financial suffering is aggravated and endures for longer. The descriptions above are overly simple and general, but the bankruptcy option is a poor one and you should explore your options with an attorney before making a decision. After a period of time a rehabilitated insolvent may apply for credit, but this will depend on numerous factors. Most lenders state that at least a year must pass after a person’s been rehabilitated and a new good credit history must be established. A difficult chore, but it can be done. Make sure that rent or mortgage payments have no late payments for at least the previous 12 months. Avoid paying in cash; make all payments by check or credit card where your payment history can later be verified. It will also help to explain to your lender that the situation that originally caused the problem, a job loss, illness, etc., has now been resolved.

    For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za


    5 Things To Make You STOP PAYING RENT

    July 3, 2007

    People fear what they do not understand. A good example is the purchase of a home. The average consumer knows very little regarding the home buying process. Between finding the right house, making sure it won’t fall apart the day after it is purchased, and finding the best financing, it is no wonder that so many people are afraid to purchase homes. Buying a home is one of the most important financial decisions an individual will make. For a first-time home buyer, the decision to purchase a home can be daunting. It will represent a major step forward as the individual/family will be assuming potentially its largest responsibility. As with any major decision, it is important that everyone, especially first-time home buyers, take full advantage of the information and training that is available to more clearly understand the home buying process.

    To prepare, you should do research and be fully informed before beginning the search for a dream home. Here are five steps to get started:

    1. Before you start your house search, think carefully about what it will be like to be a homeowner. For most people, home ownership is an integral part of South African lives. That is not even to mention that the advantages (tax benefits, pride of home ownership, financial investment) far outweigh any drawbacks.

    2. Your credit history is one of the first things a lender will look at in making a decision on your loan. Contact one of the three major credit-reporting agencies to obtain a credit report. Review it carefully to be sure all the information is correct. If you find discrepancies, you should work with the credit agencies to resolve them.

    3. Saving for a deposit can be one of the biggest barriers to home ownership. Mortgage lenders recognise this dilemma and many now offer no-deposit loans. In addition to this they are also offering 105% home loans to pay for transfer and registration fees. So you can buy a house without needing any money for a deposit and transfers etc.

    4. Before you begin working with an Estate Agent, first go to your local bank and ask them to pre-qualify you for a mortgage. Most will provide this service free of charge. Pre-qualification will let you know exactly how much you can spend on a home purchase BEFORE you start your search. A pre-qualification also makes you a more attractive buyer when you are ready to make an offer on a home. Home sellers are more likely to accept an offer from a buyer who can demonstrate the ability to secure financing.

    5. Many financial institutions offer home buyer education classes to prepare you for home ownership. Classes normally run about four hours and cover the basics of home buying. Some of the topics covered are how to apply for a loan, work with an Estate Agent, make an offer on a home, and the responsibilities of home ownership.

    More people who are renting property now could qualify to become a homeowner. Do not let fear or ignorance stand in your way.

    For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za