Mortgage Loans: Should you use bond originators or not

Many South Africans aspire to home ownership but with the cost of housing tipping the scales, soaring interest rates, and the high cost of living, home ownership may remain out of reach for many.

As a result, millions of South Africans depend on home loans and mortgages, which have become increasingly difficult to secure, especially for those in the low income earning segments. This, according to Marius Marais, CEO of FNB (First National Bank) Home Loans, is because ‘‘many South African banks have adjusted lending criteria based on sound economic principles to protect both the customer and bank.”

He adds that this was done to ensure sound credit lending policies. However, one of the most important decisions facing the home buyer is whether to use the services of bond originators or go directly to their banks.

According to Marais, different banks have different lending policies, which is the reason why an application declined by one bank may be accepted by another. Though banks work hand in hand with bond originators and they present the buyers with a wider range of options to choose from. The drawback is that the buyer might lose out on getting a mortgage at a cheaper rate because when buyers go directly to banks, the bank won’t have to pay third party commissions which might impact on the client.

Qualifying for a bond 

To boost your chances of getting a bond, Marais notes that customers seeking long-term loans should ensure they conduct their financial affairs prudently. In addition, they should look after their credit profile by ensuring that they supply all income and asset documentation and pay all their financial commitments without fail when they fall due.

In terms of affordability, Franlize Fourie, real estate agent at Chas Everrit, Cape Town, suggests that your income will stretch further if you combine your spending power with that of your spouse. This is because, with a joint monthly income, you stand a better chance of an approval.  

Pre-qualification and preapproval

Fourie adds that it is always best for the aspiring home owner to do to a pre-qualification assessment to determine what they can afford to buy and then shop for a home that falls within their affordability ratio.

“Affordability is calculated based on income and expenses in line with current debt and what the client will be able to repay. This will determine how much the client can afford to apply, for their credit score is also taken into account to determine the amount they will qualify for,” she highlights.

After which the client can be assessed and be given a pre-approval in minutes should they fulfil all requirements.

Affordability 

However, Shaun Redemeyer, CEO of Better Life Home Loans, stresses that a buyer should make an effort to understand the extent of home related costs, which extend far beyond the bond instalments.

When it comes to approving bond applications, banks take a detailed look at your source of income, Redemeyer says. They will consider things such as length of time with the current employer or the likelihood of a contact being renewed.

Another factor to be aware of Rademeyer notes is that bond repayments should not exceed 30% of your total income. Also the property they are looking to buy will be subject to valuation to ensure that there is sufficient value in the property to justify the purchase price which will also guard you from overpaying for a property. And if the value is not up to par, the application could be declined.

Mortgage origination 

To avoid this, first time buyers must ensure to apply to a sympathetic lender and it is best to go through a mortgage broker who knows which lenders are best to approach, to avoid the hassles of submitting multiple times to various banks, Redemeyer explains.

“The bond origination market enables estate agents to use the specialised skills of the originators to ensure the customer gets the loan for his dream house and with almost double the conversion ratio vs. a customer going to his own bank it is a no brainer for agents to use origination,” he emphasises. 

Further, Redemeyer states that normally a client would submit the application to their own bank first, and upon decline would then submit to other banks. By that time the other banks would be informed of the decline and would take this decline into consideration when reviewing the application. Using an originator would allow the client to receive multiple offers at the same time and allow the client to make a more informed decision and thus take the best offer presented to the client. Using an originator is at no cost to the client.

Originators commission 

Bond originators receive an administration fee from the bank with whom the client’s mortgage is registered with, but it’s important to note that this fee does not affect the customers’ home loan repayment, Redemeyer points out.  

The chances of a customer getting a better rate is due to the fact that he can see up to nine offers on his application. This allows them to see which bank give them the best rate and inevitably getting a more favourable rate, says Redemeyer.

This is because bond originators submit to multiple banks each with their own assessment of risk. This means most of the time, the banks offerings in terms of loan amount as well as interest rate differs.

“We present the approvals to the client where the client can then decide which option is best in terms of loan amount, term and interest rate.Affordability is the key to getting your mortgage approved, the bank takes all the open credit agreements you have into account, even if you are not utilising all of them always remember that it its very crucial that you buy well within your means,” Redemeyer highlights.