Why would I want a home loan?
Not everyone can afford to buy property in cash.
Some of us need some help by getting a loan from a bank.
Other people want to help the bank finance an investment property.
If you’re looking to get a loan from a bank, then this article will give you a bit more information about what the bank submission process is.
Before you get to the OTP phase, you will need to get a lot of things in order. To help you on this journey, I have created a FREE short course with videos and articles for you to use. Check the link here!
Once you have an offer to purchase, you will need to get a home loan. The offer to purchase is the basis for propelling the process of home buying forward.
Choices: a mortgage originator or self submit?
Depending on your offer to purchase, you might want to use a mortgage originator. What they do is so much simpler than their name – they submit your application to all the banks and can give you feedback on interest rates and terms and conditions in a much easier language than big corporates.
They also know the process, thus they often can help a clueless person to get a better deal than going to the bank themselves.
Do I recommend using this free service? Well, it is free 😉
From my experience, your own bank doesn’t always give you the best deal. For this reason, it might be worth it to explore other banks’ offers as well.
Submitting to the bank
Depending on the OTP, you can have between 7 and 21 days to get a home loan. You will need to make haste, as the clock starts ticking once you’ve signed the OTP!
You will be required to submit paperwork – and loads of it.
Here are some of the things that you need to have ready:
- Certified copy of your ID
- Proof of your income tax number
- 3 x months bank statements
- 3 x months payslips
- Proof of your current address
- OTP signed by both parties
- Bond application form
Once you have all your paperwork in place, you are able to submit all the details to the bank. If the mortgage originator is handling it for you, it’s done automagically.
Depending on your unique financial situation, you might be required to submit additional paperwork.
- If you’re planning on buying the property in a company, you will need to submit audited financial statements, registration details and info on the shareholders.
- If you are planning to buy the property, but are married in community of property, you will be required to submit the details of your spouse as well
- In the case that you are politically connected, some banks might request a full disclaimer with proof of where you’re getting your funds from.
Once you’ve submitted it, the bank will do some interesting things with your application. These include:
- Checking your affordability
- Doing a credit check on you and scrutinising all your debt
- Interest rate calculations – they will calculate this by looking at factors such as job title, education, length of stay at your current job, marital status and credit score.
- Doing a stress test – The bank wants to see if you’re able to afford the loan even if interest rates might rise substantially, your existing debt becomes more, etc.
Sometimes the bank sees that there are still some documents it requires to make a decision such as the books of the block of flats.
Once all of this has been done, the bank will respond with one of the following:
- Approved in principle – As a provisional grant, there might be some checks that they want to do first. This includes sending out a property surveyor or getting the books of the body corporate checked out.
- Formal Grant/Final Grant – This is the final quote that the bank will send you. This will contain the terms and conditions, loan amount, interest rate and other legal details that will be written down. The bank might offer you a lower amount than what you asked for!
- Declined – The bank has declined your application. In most cases, the bank will tell you why it’s been declined.
The bank can also supply you with a conditional grant. These responses might include:
- Before the loan is officially approved, first sell an existing property.
- Certain statements (such as audited company statements) are submitted to the bank and approved by them.
- You move your transactional accounts to the bank
- The bank gets notified if certain details of the trust or company that’s buying the property changes.
- Life insurance – in many cases the bank wants to know that if you die, they will not run into financial issues. Historically, only disability (quadriplegia) and life cover has been required.
- Building insurance – in some cases, the bank might require you to have building insurance.
- Retrenchment cover – with the rise of certain international pandemics, the banks try to cover their investment defaults by forcing many individuals to get retrenchment cover. The reason for this is that certain industries are subject to higher risk of job losses.
Are you able to negotiate special conditions? It depends on the condition. For example, I have once disputed a clause and the bank removed it.
Make sure it’s worth the fight!
Why has the bank declined my loan?
If the bank declines your application without a reason, ask them why. Here are some of the biggest reasons why a loan is declined:
- Affordability – you’re not able to afford the property
- Credit score – you have some issue with your credit that is stopping the bank from giving you the loan
- Overexposure – the bank has too much debt in the sectional title block or area. They are legally regulated with how much debt exposure they can have.
- Body corporate health – the block is financially bankrupt and the people have not been paying levies. And the bank does not want to be part of it.
- Overpriced – The bank does not believe that the property is worth what you’re paying for it.
Accepting the final grant and attorneys
When you accept the final grant, you need to let the transfer attorney know that you’ve received a loan. In some cases, you send the grant through to the estate agent who sends it through to the transfer attorneys. I prefer not to share any personal information (as far as possible) with an estate agent – why should they know about my personal financial situation and investment properties?
Once the bank receives your response on accepting the final grant, they will instruct a bond attorney to get the ball rolling. The bond attorney will call you within a week or so to come and sign paperwork and pay them their fee.
The transfer attorney will do the same – sign their forms and pay their fees.
Remember – always negotiate their fees! Ask for a discount!
Once everything is signed and sorted, the documents will be submitted for registration.
Once a property registers, it’s yours!
Loans with banks can be confusing with loads of paperwork.
The amount of legal red tape that has been created is staggering.
Just give the bank everything that they ask for.
And ask questions if you’re not sure.