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Buying your home | Refinancing your home | Getting a Bond

If you're like most people, buying a home is the biggest investment you'll ever make. Annual mortgage, rates and taxes,insurance costs can range from 25% to 40% of your gross annual income. By visiting this reference page, you're on your way to protecting yourself, and making the home-buying process easier by becoming an informed consumer. Read, talk to family, friends and professionals. You'll be glad you took the time to understand the process.

BUYING A HOME

1. Looking for a home without being pre-approved.

Pre-approval and pre-qualification are two different things. During the pre-qualification process, a loan officer asks you a few questions, then hands you a "pre-qual" letter. The pre-approval process is much more thorough. During the pre-approval process, the mortgage company does virtually all the work associated with obtaining full-approval. Since there is no property yet identified to purchase,an appraisal and title search aren't conducted. When you're pre-approved, you have much more negotiating clout with the seller. The seller knows you can close the transaction because a lender has carefully reviewed your income, assets, credit and other relevant information. In some cases (multiple offers, for example), being pre-approved can make the difference between buying and not buying a home. Also, you can save thousands of rands as a result of being in a better negotiating situation. Many bond originators will help you become pre-approved at little or no cost. They'll usually need to check your credit and verify your income and assets/liabilities.

2. Making verbal (oral) agreements!

If an agent tries to make you sign a written document that is contrary to their verbal commitments, don't do it! For example, if the agent says the washer will come with the home, but the contract says it will not--the written contract will override the verbal contract. In fact, written contracts almost always override verbal contracts. When buying or selling property, abide by this maxim: Get it in writing!.

3. Choosing a lender because they are recommended by your Estate Agent.

Your Agent is not a financial expert. He or she may not know which loan is best for you. Your Agent gets a commission only when your transaction closes. As a result, the Agent may refer you to a lender who will close your loan, but who may not have the best rates or fees. Also, many Agents refer you to one of their friends in the loan business--who also may not have the best rates or fees. Although most Agents are professional and concerned about your best interests, you should do your own homework.
We recommend shopping for a loan with at least three Banks before you make a decision. There are countless stories of consumers who ended up paying higher rates, or got a loan that wasn't right for them, because they blindly followed their Agent's advice.

4. Not getting a fixed rate in writing.

When a mortgage company tells you they have fixed your rate, get a written statement detailing the interest rate, the length of the fixed rate, and other particulars about the program.

5. Using the same agent from whom you are buying your new property to sell your old property.

If you have made a "subject to the sale of your property" offer on a property, then it may work out less expensive to use the same agent from whom you are buying a house to sell your own house. The Agents usually discount their commissions because two sales are obviously better than one. This strategy also makes the Agent more proactive in selling your home, therefore helping you secure your new purchase.

6. Not shopping for home insurance until you are ready to close.

Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and find they have no time left to shop around. The cheapest quote is not always the best quote. There may be various exclusions that you may not be aware of. I always recommend a company with the personal touch rather than sausage factory call centres. At least you then build a relationship and understanding with that particular company.

7. Signing documents without reading them.

Do not sign documents in a hurry. As soon as possible, review the documents you'll be signing at close of escrow--including a copy of all loan documents. This way, you can review them and get your questions answered in a timely manner. Do not expect to read all the documents during the closing. There is rarely enough time to do that. If there is any doubt about terminology and/or any clauses then contact the conveyancer. They are qualified to help you and will give you the correct advice.

8. Making moving plans that don't work.

You expect to move out of your current residence on Friday and into your new residence over the weekend.
Also on Friday, your lease terminates and the movers are scheduled to appear.
Friday morning arrives: bags packed, boxes stacked, children under arm and the dog on a leash;
you're sitting on your front door stoop awaiting the arrival of the movers.
Your phone rings. Your loan closing is delayed until the following Tuesday.
The new tenants turn into your driveway with a weighted-down U-Haul and the movers pull up across the street.
You ask yourself, "Where's the nearest hotel and storage facility?
How much will the movers charge for an extra trip?
Can we afford it?"
How can you avoid such a disaster?
Cancel your lease and ask the movers to show up five to seven days after you anticipate closing your transaction.
Consider the extra expense an insurance policy. You're buying peace of mind--and protecting yourself from expensive delays.

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Refinancing your home

1. Refinancing with your current lender without shopping around.

Your current bank may not have the best rates and programs. Believing it's easier to work with your current bank is a common misconception. In most cases, they'll require the same documentation as other banks. This is because most loans are sold on the secondary market and have to be approved independently. Even if you've been good at making payments to your existing lender, they'll still have to process the verifications all over again.

2. Not doing a break-even analysis.

Determine the total transaction costs and how much you'll save each month by lowering your monthly mortgage payment. Divide the transaction costs by the monthly savings to determine the number of months you'll have to stay in the property to recoup your refinancing costs. For example, if the costs of refinancing total R2000, and you save R50 per month, you break-even in 2000/50 = 40 months. In this case, you should only refinance if you plan to stay in the home for at least 40 months. Alternatively, you could negotiate the bank to include the cost of registration in their costs.

Note: The above example is suited to comparing two similar loans when the intent is to lower your monthly payment and recoup transaction costs relatively quickly. Other refinancing transactions require different kinds of analyses which are beyond the scope of this document.

3. Not providing your bond advisor with documents in a timely manner.

When your bond advisor asks you for additional paperwork--get cracking! They're trying to get you approved! If you don't quickly respond to your bond advisor's requests, you could end up delaying the whole transfer process

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Getting a bond

1. Getting too large a bond

When you get too large a bond, you can be turned down for other loans. Some lenders calculate your bond payments based upon the available credit, even when your bond has a zero balance. Having a large bond indicates a large potential payment, which makes it difficult to qualify for loans.

2. Getting a bond to pay off your credit cards if your spending is out of control!

When you pay off your credit cards with your bond, don't put your home on the line by charging large amounts on your credit cards again! If you can't manage the plastic, get rid of it!

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