Not many of us can afford the home of our dreams on a single income – particularly in the current financial climate. Thankfully, property investment doesn’t have to be a solo deal. In fact, more and more buyers are choosing to pool their resources with a partner – or group of partners – to boost their buying power and capitalise on the opportunities the current market offers.
“Joint bonds are extremely common, and lenders have well-established processes for these types of applications,” says Leonard Kondowe, National Manager at Rawson Finance. “They are not, however, any more lenient with joint bonds than any others.”
According to Kondowe, there is a common misconception that applying for a bond with a partner may decrease the impact of black marks on your own financial profile. In reality, he says it’s just as important to polish your financial history before a joint bond application as it is when applying as an individual.
These are his tips for doing exactly that.
Settle your debts
Debt is one of the first thing lenders look at to assess applicants’ affordability – and reliability. Kondowe strongly recommends all applicants pay off as much existing debt as possible before the application.
“Less debt means more disposable income to boost the maximum bond you qualify for, and also demonstrates a history of financial responsibility, which lowers your risk in the banks’ eyes,” he says.
Polish your track record
The lower your risk profile, the lower your interest rate. The best way to prove that you’re a low-risk candidate is to show that you’ve been responsible with debt in the past.
“Anything that shows a history of paying your debts timeously counts in your favour,” says Kondowe. “If none of your applicants has ever had a credit card, store account, phone contract or similar agreement, it may be worthwhile opening one to build a positive history.
On the other hand, if you have any accounts with a less-than-stellar payment history, it would be smart to close those out well in advance of your application.”
Being able to prove that you have savings ready to use for a deposit will also count in your favour.
Don’t overreach
While joint bonds typically dramatically increase buyers’ affordability, Kondowe urges applicants not to overreach on their mortgages.
“You’ll always get a better interest rate if you have a sizeable deposit, and are buying below your maximum affordability level,” he says. “More importantly, this also gives you a buffer if interest rates do not go down as expected. The last thing you want is for one or more of your co-owners to get into financial difficulties and be unable to service their portion of the loan.”
Play to your strengths
While joint bond applications won’t hide black marks on anyone’s financial records, Kondowe says making the most financially attractive applicant the primary applicant is a good way to play to your strengths.
“Don’t be fooled into thinking the strongest applicant is always the one with the biggest income, either,” Kondowe adds. “Rather work with a bond originator who can give you accurate advice on which profile best meets the criteria the banks are looking for.”
Don’t forget the contract!
While a rock-solid agreement won’t help your bond application, Kondowe says it’s still an essential part of any joint bond. “There are a lot of risks involved when investing with other people,” he says. “You need to be completely sure everyone understands their role and responsibilities, and that everyone’s interests are fairly protected in the event of unforeseen circumstances.”
Key elements to include in a joint bond agreement are each person’s buy-in and ownership portion, division of ongoing responsibilities, and procedure for dissolving the investment partnership if required.
“Remember, each participant in a joint bond is equally liable for repayments in the bank’s eyes, regardless of what you agree on privately,” says Kondowe. “Make sure you have an iron-clad contract in place, preferably drawn up by an experienced property lawyer, and consider taking out life insurance on each applicant to cover their portion of costs in the event of their death.”
An article published on Property24 on October 12, 2018, features Mpho Ramatong, FNB Home Finance Division Channel Head: Housing Schemes, who said when lenders assess an application, affordability, which considers your total income relative to living expenses, is an important measure used to determine whether you would be able to keep up with monthly home loan instalments or not.
This can further influence the home loan amount and interest rate you would be quoted for the term of the loan.
“Therefore, taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” said Ramatong as she unpacked some of the common mistakes that consumers make when completing the expenses portion of a home loan application:
1. Duplication
Some applicants fail to get a good home loan deal due to the duplication of expenses.
For example, if you have declared funds that you prepay into your credit card monthly, which you may be using to fill up for petrol and for groceries, you need not complete the groceries and petrol expenses portion in the form.
Ramatong said another form of duplication may arise if you are co-applying with a partner or individual that you stay with. In this instance, only one applicant may declare shared living expenses. For example, rent, water and electricity costs.
If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses.
2. Dishonesty
Being dishonest about your living expenses may lead to your application being declined.
When applying for a home loan, banks require that you submit a payslip and six months’ worth of bank statements, amongst other documents. As a result, any disparity in the expenses portion of the form can easily be picked up by the bank.
3. Entertainment
Be careful not to mistakenly declare a high entertainment expense by failing to separate needs from wants.
For example, a need could be monthly costs for educational or recreational activities. A want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants, and so forth.
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Finally
“If you aren’t sure about how to correctly declare expenses, it is advisable to consult your bank or an expert to avoid making costly mistakes,” said Ramatong.
Excerpt from P24
