Maximum Home Loan Affordability

G

GrantM89

Member
Joined
Jun 22, 2013
Messages
12
Reaction score
0
Hi Guys,

I am planning on buying a house next year. I have been stalking Property24 for the last few months and know what area i'd like to stay and what price range I am looking at.

My question is...how set in stone are the Home Loan Affordability Calculators? They obviously give an estimate based on expenditure, but I'd like to know realistically what price house I can look at.

I currently have very little debt. My car is paid, my credit card is paid and I am currently renting for R5000 a month. At the moment my only expenditure is really my Unit Trust, Insurance, Cell phone/Internet and gym (medical and tax obviously coming off gross). I am currently saving R6000 a month. My girlfriend will only start working as a candidate attorney next year so she will have a slight bit to contribute (they get paid pathetically).

Does this mean the bank would look at qualifying me for close to that amount (current rent + R6000 savings + GF's salary) or do they stick very closely to the 1/3 of gross rule. Obviously my debt to income ratio is really low, with the only things being those things you cant avoid.

Thanks again guys for you kind assistance.

G
 
They usually stick to the 1/3 of gross rule. Also the thing I got stuck to when I signed up for my homeloan. Looking back at it now, that was a fairly good rule.
 
I believe legally they can't do more than the 1/3 rule regardless.

But in my opinion that isn't realistic anyway.

You would do far better buying a house that is say 15-20% of your salary but then paying it at the 30% rate.

That way you'll way it off faster, but more so if the **** hits the fan you will have a nice buffer.

1/3 doesn't give you any of that and you skip even a single month it's a hell hole to get out of.

Do not overexpose yourself for the best case scenario, instead plan for the worst case scenario.

If it never happens, bonus. If it does, you'll get through it.

Buying a house for a loan term of 20 years and paying it as such is NOT an investment.
 
Aish ... Difficult to answer with the details above ....

But, I can try (I am by no means the expert on this, and offer this as help only).

So firstly the banks dont want to take risk anymore. Even with all the right stuff you may still be declined.

Having said that, If I throw in some hypothetical numbers - say gress R30 000, net R20 000, expenses R10 000 - you then have R10 000 that the bank says you can use.
They look at 30% of your gross and that determines what you can repay, and they use that over the period - say 20 years - to come up with a number.
In our hypothetical example - the number over 20 years will be around R950 000 and R1,1million over 30 years.
Of course the house valuation, your budget you give the bank, your credit rating ... all play a role.

As for the GF, you could do a joint account .... If the bank was satisfied with both parties financial affairs, and probably ask ask you to be the guarantor.
 
Thanks guys. Yeah...I think I need to get away from this idea of wanting to get a maximum size home loan.

But working on this R30 000 gross example. If after deductions I got slightly over R20 000 in the bank (worst case) and my debit orders were only R5000....leaving R15 000 that is purely for savings and perhaps a bit of living expenses included.

That should surely qualify me for the 1/3 of gross monthly installment? Also leaving a couple thousand over every month to put towards a rainy day or to put extra into the bond.
 
GrantM89 said:
Thanks guys. Yeah...I think I need to get away from this idea of wanting to get a maximum size home loan.

But working on this R30 000 gross example. If after deductions I got slightly over R20 000 in the bank (worst case) and my debit orders were only R5000....leaving R15 000 that is purely for savings and perhaps a bit of living expenses included.

That should surely qualify me for the 1/3 of gross monthly installment? Also leaving a couple thousand over every month to put towards a rainy day or to put extra into the bond.
Click to expand...

Yeah, the gross affprdability is one aspect, and the ''what you have left'' as disposable income is the other - thats what the bank and you need to look at.

More importantly, though, is to look at the interest rate. You may have the option to fix it at a slightly higher rate than the prevailing rate.
The decision to do this should be based on what you see the economy doing and MPC discussion.
Right now, I would say fix it. The reserve bank has been trying to stimulate spending and so has held the rate. With the discussion now focussing on savings - thats a good indicator that the SARB are looking at hiking rates to make saving look more attractive. That aside, the Rand weakening is a sure sign of rate hikes as they attempt to stem this.

You may need to take a life policy to cover the bond. Dont let the bank force you to take theirs. Speak to a broker, and I suggest a policy that has a payout portion after maturity. If you pay just R100 PM more on your bond and cash in your policy after 10 years, you could end up without a bond in 10 years instead of full term.

Edit - again I remind you that I am in no way registered under FAIS to give sound advice. (Thats the legal stuff done)
 
Last edited:
How about using a Flexi Bond?

Get yourself a plot, build a bathroom, a bedroom and a kitchen in the meantime.
You will only get interest on the amount that you have used.
 
The problem I have now is that there really is very little out there with a decent garden (for 2 labradors) and in a decent area for under R1 200 000 in Cape Town Northern Suburbs. I guess if I can find a newly built development with no transfer fees in Protea Heights for R1000 000, that's going to be my only option.

The question is.....is renting for R8000 a month for 2 years and then buying a place that bad a decision? I know it all depends on circumstances and would probably be the better idea if I wasn't planning to settle in that house for AT LEAST 3 years. But in 2 years from now I think our combined salary will be substantially higher than what we earn now.
 
Generally speaking, if you're gonna be looking to upsize in 2 or 3 years then renting is the better option, meanwhile save the difference to put towards a nice deposit on the house u do end up buying. This calculator is in USD and I've yet to play with it myself, but it looks like it could prove useful :) http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

And some are of the view that one is better off renting for life, but that is a debate for another day.
 
The banks look at 30% of of your take home amount, then see if you actually have that much available after monthly expenses.

One freaking annoying down right shafty thing they like to do is let you take a personal loan for the deposit, which is ridiculous since the interest rate is just ridiculous for personal loans.
 
You're forgetting about little things like property tax, water and lights, etc.
These add up to a few k per month, very easily. You're also not catering for insurance on the building - a must even if the bond you were taking out didn't require it, which it will.
 
reactor_sa said:
The banks look at 30% of of your take home amount, then see if you actually have that much available after monthly expenses.

One freaking annoying down right shafty thing they like to do is let you take a personal loan for the deposit, which is ridiculous since the interest rate is just ridiculous for personal loans.
Click to expand...

No, it is 30% of gross.
 
GrantM89 said:
The problem I have now is that there really is very little out there with a decent garden (for 2 labradors) and in a decent area for under R1 200 000 in Cape Town Northern Suburbs. I guess if I can find a newly built development with no transfer fees in Protea Heights for R1000 000, that's going to be my only option.

The question is.....is renting for R8000 a month for 2 years and then buying a place that bad a decision? I know it all depends on circumstances and would probably be the better idea if I wasn't planning to settle in that house for AT LEAST 3 years. But in 2 years from now I think our combined salary will be substantially higher than what we earn now.
Click to expand...

What do you have as a deposit now?
 
From personal experience, what those calculators show you and the bank offers are not usually anywhere close... calculator showed me I could get 1.3m but the bank only offered me 1m . Have heard similar things from most of my friends.
 
ToxicBunny said:
From personal experience, what those calculators show you and the bank offers are not usually anywhere close... calculator showed me I could get 1.3m but the bank only offered me 1m . Have heard similar things from most of my friends.
Click to expand...
Well the crux of it is what is viewed as being counted as your total monthly expenses? Playing with Ooba's calculator now and if I slap on an extra 5k of expenses there's a 500k drop in what bond i am eligible for :(
 
StrontiumDog said:
Well the crux of it is what is viewed as being counted as your total monthly expenses? Playing with Ooba's calculator now and if I slap on an extra 5k of expenses there's a 500k drop in what bond i am eligible for :(
Click to expand...

I used exactly the same figures in the calculator as I provided to the bank...

Even my estate agent told me that its very common that the calculator shows WAY more than the bank will actually give.
 
The banks, when they do an affordability assessment, take other factors into your affordability. These include an allowance for interest rate increases, water & lights, rates and taxes, and an additional margin for any understated (or not stated) expenses or new expenses which you will incur in the future.
 
How accurate is the assessment when dealing with an actual person at Ooba or PA Betterbond?

And is there a way to kind some kind of pre-approval from one's bank, say FNB for example?
 
StrontiumDog said:
How accurate is the assessment when dealing with an actual person at Ooba or PA Betterbond?

And is there a way to kind some kind of pre-approval from one's bank, say FNB for example?
Click to expand...
Banks will give you a vague pre - approval maybe... then fsck you over when you actually put in an offer
 
ToxicBunny said:
Banks will give you a vague pre - approval maybe... then fsck you over when you actually put in an offer
Click to expand...
*sigh* I was contemplating going the auction route but more and more I am getting sh-t scared and need to make damn sure I have ample leeway in terms of the size of the mortgage I'll be granted.
 
You must log in or register to reply here.
Back
Top
Sign up to the MyBroadband newsletter
X