A home loan pre-qualification gives you power to negotiate

If you want to negotiate a better price on a property, then you need to have the funding available. If you are purchasing in cash, it is easy enough, but even if you require home loan funding, obtaining pre-approval for a home loan can put you in a better bargaining position.

Tiaan Pretorius, manager for Seeff Centurion, says you do not want to miss out on your dream home just because you did not qualify for a big enough bond. Pre-approval will also give you better bargaining power and make your offer stand out compared to buyers who are not pre-approved.

Gerhard van der Linde, MD for Seeff Pretoria East, says it is best to make an offer that is as “clean” as possible. The fewer restrictive conditions in the offer, the better the chance of it being accepted.

There are in fact several advantages for buyers. You can shop for a home with confidence and know exactly how much you can buy for. Sellers are more likely to accept the offer as they know you are a serious buyer, and you could potentially negotiate a better price as you are a qualified buyer.

Buyers can either apply for pre-approval at their own bank, or a bank of choice, or they can make use of a mortgage originator such as ooba, which works with all the banks, and often offers a better chance of securing a favourable loan, perhaps even with a rate concession.

The pre-approval must be done formally, and not just an online test to see if you qualify. The formal approval process will take various information into consideration including a credit and risk assessment. Van der Linde says further that the prospective property buyer will usually need to have a current credit record which shows an ability to manage credit with timeous payments.

A credit history is usually built over a period as you need to have a record which shows that you pay on time and do not skip payments. It should also show that you do not overextend on credit as this will affect your credit score. If there are any defaults on your record, you will need to wait a few months for it to correct before applying for home loan pre-qualification.

According to ooba, a credit score of at least 610 is needed to qualify for a home loan, with a  score upwards of 661 regarded as good. The National Credit Act regulates credit. In terms of this the banks must ensure that the buyer qualifies for the credit and can adequately cover the monthly repayments.

As a rule of thumb, the home loan repayment must not be more than one third of your monthly income. If you are buying jointly with a spouse or partner, then you should add the incomes together so that the assessment can be done on the combined income. In addition to details of all your income, you will also need a list of expenses and show that you have adequate surplus income to cover the home loan repayment amount.

Once you have the pre-approval you can then start house hunting with confidence. Although the bank will again do an assessment once the offer to purchase is accepted by the seller, it does put you in the front of the queue as a prospective homebuyer.

Pretorius says further that once the buyer has secured a home loan, they must maintain their credit and not make further debt until the transfer of the property is registered. The banks can do another credit assessment and if anything adverse shows up, it could put you at risk.

Writer: Gina Meintjes