Pre-qualification the Key for Buyers (The Bugle)

If you have recently applied for home finance, you may well have experienced a long drawn out bureaucratic process, which may not even have resulted in a positive outcome, despite your positive credit record. Self-employed commission earners are prejudiced severely by the current lending criteria imposed by most banks.  This can be very frustrating for the applicant who could have wasted a lot of time house hunting, and equally as frustrating for the estate agent servicing the prospective home owner. Sellers in general have realized that offers, which are subject to a mortgage bond condition, are far from conclusive and will typically continue to market a property until all the finance is approved. 

According to Ooba, South Africa’s leading mortgage bond originator, their latest figures indicate that the average initial decline ratio is 47.3%. That means that the first bank will decline almost one out of every two, mortgage applications received. This is not a very encouraging statistic for a homebuyer requiring mortgage finance and would suggest that a different strategy would be required. Ooba furthermore advises that the average deposit required by banks is as high as 14.6% of the purchase price, which is even higher than the 12.5% of a year ago. For those contemplating 100% finance, this will be an instructive statistic and highlight that more than likely you will require a plan B if you are going to be moving into a new home anytime soon. Apart from providing a more efficient application process to banks, mortgage originators know each bank’s individual lending criteria and will shop your application around across the four main commercial banks, and depending on your profile with leading private banks as well. This key advantage of dealing with one contact person and application for several submissions is highlighted by the 29.9% ratio of applications declined by one lender but approved by another. Almost a third of all applications are therefore going to rely on a second or third submission. Ooba’s effective approval ratio is therefore 66.8% demonstrating how important it is to shop around when considering mortgage finance. Many people do not realize that they only get one shot at the application process. Should you provide insufficient or incorrect information, the chances are that you will be unsuccessful. 

So what is best approach? Ooba have developed an excellent pre-qualification process to eliminate time wastage and highlight any major stumbling blocks. Affordability and credit issues are picked up immediately and the applicant will have the opportunity to remedy these, if required, prior to a mortgage bond application being submitted. Affordability can be improved by consolidating existing debt over a longer repayment period and credit issues can be addressed through the services of a credit rehabilitation company.  The benefit to a buyer of being pre-qualified is that they will receive a full credit report, credit position and payment profile allowing them to shop with confidence in the correct price bracket. On receipt of an offer to purchase by a seller from a pre-qualified applicant, this will viewed in a very different light and provides the buyer with a negotiating advantage.

(Author: Andreas Wassenaar, published in The Bugle 18 Sep. 2013)