How to Apply for a Bond in 6 Simple Steps
- After months of searching, you’ve finally found a home and signed an offer to purchase. Now you need to apply to a financial institution for a bond.
- A bond in South Africa is an amount you borrow against a property, usually for the purpose of purchasing it.
First things first
Before granting you a bond, your financial position and credit record will be checked. It helps to know what your credit report says before even trying to apply for a bond. You may be slightly in arrears on payments of a credit card you hardly use, and you could be noted as a late payer, which would impact approval of your bond application.
Owing too many creditors money is a common reason for a bond to be declined. This is because lenders believe that applicants with too much outstanding debt have more chance of not keeping up with monthly repayments. Showing that your finances are well-managed increases your chances of a successful application.
Apply for pre-approval
It’s possible to apply to a financial institution for pre-approval before you even start looking for a house. This will give you a good idea of the price range in which you should look.
Do your sums
Financial institutions have certain affordability ratios, and you need to know how much disposable income you have so you know how much you can afford. It’s not just about the bond repayments – you will need to include insurance and municipal costs in your budget.
Most financial institutions have bond calculators on their websites so you can find out how much you will need on a monthly basis to cover the bond. Financial institutions will want records of your monthly income and expenditure.
Understand the costs
Depending on your financial situation, you may be able to qualify for a bond without paying a deposit. In some cases, you may need to put some of your own money on the table. Most credit providers require buyers to have access to about 10% of the property’s value in cash.
The larger the initial deposit, the smaller the capital debt and the less interest you pay in the long term. Secondly, if you’re able to put down a higher deposit, you’re usually regarded as a lower risk and a provider may be willing to give you a larger bond or better interest rate.
Once-off costs you have to pay, besides a deposit, include administration fees, legal costs, bond registration fees, and VAT/transfer duties.
Compare bonds and providers
Different types of bonds include fixed-rate bonds and variable rate bonds. The type of bond you qualify for will depend on factors such as your income and the type of property you’re buying. Every financial provider assesses your bond application in a different way. Your application may even be denied by one institution and approved by another. It’s worth exploring options offered by various financial providers before deciding on one.
Submit documents to your chosen financial provider
The type of documents financial providers require include the following:
- Offer to purchase
- Valid South African I.D. or passport and a copy thereof
- A copy of a spouse’s I.D. or passport if married
- Marriage certificate
- Proof of current residential address
- Employer contact details
- Statements on an existing home loan if you have one with another financial institution
Track your bond
Once the financial institution has approved your bond, a bond attorney is instructed to register it. The seller has to notify a transferring attorney to transfer the property. Various documents go back and forth between these attorneys and a cancellation attorney before the bond attorney can eventually lodge the documents at the Deeds Office.
It usually takes about three months for the bond to be registered. Once you have signed all the legal documents, transfer fees are paid, and the seller of the property has been paid, you officially own your new home.
- Make sure your credit record is clean, and your financial position is solid.
- Apply for pre-approval so you can search for a home of the right price from the start.
- Understand all the costs involved, including transfer fees, legal costs, administration fees, and transfer duty.
- Consider a variety of providers before applying for a bond.