Importance of Buyer Financial Affordability
Category Newsletter: Article 4
One of the most important aspects when deciding to purchase a property is understanding affordability. This is beneficial both to the Buyer, to avoid wasting time looking at unsuitable properties, and also for the Seller who needs to be comfortable that a bond or payment will be successfully concluded once a sale document has been signed.
Seeff Dolphin Coast endeavours to assist all Buyers in this aspect and works very closely with ooba consultant Cindy Kirchner to establish both affordability and bond approval parameters. This was even commented on by a seller after Seeff had successfully sold the property within 5 days after taking on the Sole mandate. In a letter received by the Seeff Dolphin Coast’s Customer Relations Management Department the Seller stated:
“I was impressed that Seeff’s internal audit of buyer financials clicked into action immediately an OTP was signed – this enabled me to make a decision as to which of the two potential buyers who offered signed OTP’s were more likely to have the better financials. This is (exceptionally) relevant in an environment when banks are bond-shy, and I found it very useful.”
The property finance consultant, who works in consultation with Seeff, guides the Buyer through the exercise of establishing affordability, taking into account specific financial requirements. Monthly repayment affordability is calculated on joint/sole net surplus income after existing debt commitments and monthly living expenses have been taken into account. Other criteria, including the interest rate charged may affect the size of the loan that the bank will grant. The 'hidden costs' (transfer and bond registration fees) have to be paid upfront, and are not included in the Bond figure.
To ensure that a mortgage will be granted when needed it is highly advisable to obtain prequalification certification before deciding on what property to buy. Even more importantly, Buyers who are prequalified are in a much stronger position to negotiate with sellers.
Bond applications may be declined for several reasons: a Buyer may not be able to afford the monthly loan repayments, or may require a 100% loan which would push the repayments beyond the Buyers affordability. Another critical consideration is your credit profile, which includes employment history and consumer bureau results. This provides a picture of debt and payment history. If the bank considers a Buyer a good credit risk, it will assess the value of the property to be purchased. If this too meets all the relevant criteria, the loan is usually granted.
Statistics received from ooba for their national figures for October showed the following trends:
- 51% of applications received were for 100% loan to value bonds
- 49% of applications received consisted of First-Time Homebuyers
- 89% of applicants were employed / salaried
- 11% of applicant were self-employed
- 94% of applications received were for the purchase of a primary residence (buy to live)
- 6% of applications received were for properties purchased for investment/rental purposes.
The overall picture gained from these statistics indicated that 28% of all the bank submissions were unsuccessful due to client affordability or credit profile issues and the success of converting a deal where a qualified buyer certificate was issues is significantly higher with over 80% of such transactions being approved.
When searching for a property the last thing any buyer wants is to limit their possibilities. Understanding affordability will ensure a Buyer can feel pretty confident when making an offer. Chat to your Seeff agent to benefit from this financial affordability exercise.
Author: Chrissie Johnson