How to get yourself financially ready for a home loan

Competitive lending and stable, lower interest rates make now the opportune time for first-time homebuyers to embark on the journey to homeownership.

However, the barrier to entry often lies in affordability and finances. “While we have noted a healthy uptick in the approval of zero-deposit (100% home loans) and cost-inclusive home loans, it’s always advised that homebuyers get their financial affairs in order prior to applying for a home loan,” says Gavin Lomberg, CEO of ooba Home Loans.

Lomberg explains that the time required to become ‘financially prepared’ for a home loan varies from person to person. “For some, it may take a matter of months while for others it could take years,” he says. “It generally depends on factors such as your credit score, existing debt and financial commitments, your employment status, savings and ideally a financial buffer for unforeseen and additional costs. Ultimately, you want to enter into a home loan agreement in the strongest financial position possible. It’s all about financial wellness.”

Steps to financially prepare for a home loan application

Lomberg shares six practical steps to help potential homebuyers achieve financial success as follows:

1. Check and improve your credit score

“Your credit score is one of the first things that the banks will look at when deciding whether to approve your home loan. A credit score of 610-plus is needed to qualify and the higher the credit score the better,” he says, adding that a healthy credit score can help increase the chances of approval while securing a lower interest rate.”

“Banks also look at how the potential homebuyer has managed their money in the past. “Paying your accounts on time, paying more than the minimum instalment and keeping your debt under control will help strengthen your application. On the other hand, missing payments or applying for more credit before applying for a home loan can count against you.”

Luckily, future homebuyers have the opportunity to check and improve their credit score before applying, using free online tools like ooba’s Bond Indicator. “Even small improvements can make a big difference,” Lomberg says.

2. Take control of your debt

While income is important when applying for a home loan, the banks will also analyse how much debt the potential homebuyer already has. “In general, you are in a better position of being approved by banks if your total debt repayments are in the 30% to 35% range of your monthly gross income,” he says.

He recommends that homebuyers try to pay off as much debt as possible prior to applying for a home loan – especially high-interest debt like credit cards and personal loans. “Reducing credit limits on credit cards and keeping your credit card balance below 30% of the total limit can also greatly boost your chances of approval.”

3. Stabilise your employment

The banks want to see that the homebuyer’s income is stable and reliable before approving a home loan. “For salaried employees, this usually means having at least six consecutive months with your current employer. For a self-employed homebuyer, the banks require further supporting documents – including two years of financial statements and proof of consistent monthly income. This is where it’s strongly advised to get on top of all your income sources, tax returns and work with a reliable accountant to get the necessary paperwork in place and up to date prior to applying,” says Lomberg, noting that some self-employed homebuyers are at an increased risk of rejection due to incomplete and inconclusive paperwork and administration.

“From the banks perspective, predictability reduces risk. The more stable your financial position appears, the stronger your application becomes.”

4. Budget for a deposit and additional costs

While many South Africans still believe a large deposit is required to secure a home loan, the good news is that zero-deposit lending has become increasingly common. Some banks may also offer cost-inclusive loans (up to 110% of the purchase price), which cover additional upfront costs like bond registration and transfer fees. While this can make buying a home more affordable in the short-term, buyers should remember that borrowing more will increase the total amount repaid over time.

“For this reason, buyers who may be able to put down even a small deposit or save for upfront costs may benefit from long-term savings, a better interest rate and a more competitive OTP in a case where there are multiple buyers vying for the same property.”

Speaking to the deposit amount required, Lomberg suggests saving for a deposit amount of around 10%. “With this in mind, it’s essential that you are prequalified for a home loan amount so that you know what you are working towards.”

He adds that regardless of whether a homebuyer requires a deposit or not, having savings in place is imperative. “When purchasing a property, it’s important to remember that your home loan repayments are not the only costs involved. Homebuyers should budget for additional expenses such as transfer and bond registration costs.”

The transfer fee is paid to the conveyancing attorney handling the transfer of ownership, while the bond registration fee covers the attorney registering the bond in the homebuyer’s name. Transfer duty may also apply on properties valued above R1.21m. “Beyond these legal and administrative costs, homebuyers should also plan for moving expenses, insurance, repairs and maintenance, rates and levies and utility installation costs where possible.”

5. Get prequalified

“Prior to shopping around, you need to know what you can afford and the home loan amount that you will realistically be approved for.”

Being financially prepared to apply for a home loan extends beyond saving and budgeting; getting prequalified beforehand helps homebuyers get their documentation in order, boost their approval chances and be in a better position to negotiate when the time comes to apply.

Using ooba’s free online Bond Indicator tool, homebuyers can get prequalified in minutes to better understand their price range, identify potential red flags in their credit profile early and move quickly when the right property becomes available.

Adding to this, Lomberg says that using this tool opens a world of opportunity for a new homebuyer. “You get to walk the journey with our team of trusted professionals who have helped more than 600,000 applicants secure their dream home through a home loan. You can shop confidently knowing that we will secure you the best possible interest rate by comparing quotes from the country’s leading banks and help you throughout the paperwork process for the best chances of approval.”

6. See if you qualify for a Government housing subsidy

Finally, many first-time buyers are unaware that they may qualify for the government’s First Home Finance subsidy (previously known as FLISP). This once-off subsidy is designed to help lower- to middle-income South Africans buy their first home, with ooba Home Loans able to assist first-time homebuyers in submitting their application.

To qualify, first-time homebuyers need to earn between R3 501 and R22 000 per month; be a South African citizen or permanent resident; and have financial dependents or be married or cohabiting.

“This is a great way to get into the market, and we urge those who meet the qualifying criteria to reach out and take advantage of this path to homeownership.”

Homeownership may be closer than you think

“Homeownership is one of the biggest financial commitments most people will make in their lifetime, which is why preparation is so important. The more informed and financially ready you are, the smoother the process becomes and the stronger your chances of approval,” says Lomberg.

“Navigating this journey can feel complex, particularly when it comes to understanding affordability, comparing lending options and getting your documentation in order. This is where working with our experienced team can make a meaningful difference, helping homebuyers access the right tools, guidance and bank relationships to move forward with confidence” he concludes.

Issued by Jess Gois