When applying for a home loan, the first step is your credit application with a bank or credit provider. This application process is tightly regulated by the National Credit Act 34 of 2005 (“NCA”) and requires an assortment of information to be provided in order to allow the credit provider the opportunity to evaluate your credit profile and conduct an affordability assessment – in short, establish whether you are in a position to afford the loan and manage all of your personal debt obligations. From the credit provider’s perspective, they also need to satisfy themselves that they are prepared to risk financing your home loan and that you will be able to pay your monthly instalments on time and for the duration of the loan. Although the NCA allows any person to apply for credit, it does not oblige any credit provider to afford credit. The credit provider’s assessment of your credit profile will dictate whether it will afford you a home loan or not.
When applying for a home loan a credit provider will usually require the following minimum information (or combination thereof):
• Proof of income.
• A South African barcoded or smartcard identification document.
• Proof of residential address.
• Three months salary slips.
• Three months bank statements.
• Letter from your employer confirming your income and years of employment.
It is worth noting that the recent National Credit Amendment Act 19 of 2014 which came into effect on 13 March 2015 regarding the conducting of affordability assessments by credit providers have upped the ante by imposing stricter requirements on credit providers regarding the information required for conducting affordability assessments such as requiring three months payslips or three months financial statements to show salary deposits. This will increase the obligation on the consumer to provide proof of its income, but will also help standardize the information required for an affordability assessment across all credit providers. As a consumer, one should however get used to this type of information being required and be ready when approaching a credit provider.
Bank statements are an important aspect of any credit application. Credit providers wish to establish that even though you may have an acceptable bank balance, you did not generate such from other borrowing or once-off activities. The credit provider essentially wishes to establish that the consumer has and will have sufficient finances in their account to repay the loan (taking into account the consumer’s other debt obligations). Bank statements thus help to verify a consumer’s cash flow and spending habits as well as regular and irregular income and payments to creditors. They also help verify whether the income and expenses the consumer has disclosed on their application, matches their actual cashflow position.
Where you have other income streams in addition to for example your salary, you will be required to furnish more information to prove the frequency and reliability of such income streams, for example rental income from an additional property, a once-off contribution to your purchase from a parent etc.
Even though a person appears to be financially responsible, the credit history of a consumer – his repayment history on a credit card, vehicle loan, cellphone contract etc. – can affect that record and come into play when a home loan application is being considered.
So make sure your dream property becomes a reality by also being prepared and financially responsible so you can show in your credit application and credit history that you can afford the repayments and have a record of managing your debt responsibly.