When can your bond approval be reassessed?

Do not take on more debt after getting a home loan 

Your bond has been approved and you are looking forward to moving into your new home. But before you go on that spending spree to furnish your new home take a breath. First National Bank (FNB) has warned that taking on more debt after a home loan approval could lead to your bond being reassessed.

“Home loan customers are often not aware that some banks may continue to monitor their credit profiles and perform updated affordability checks up until bond registration. This means consumers taking on further debt after they have received a home loan approval may find that the approved home loan amount is reduced, repriced or declined all together,” highlighted FNB.

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According to Tommy Nel, head of credit at FNB Home Loans, the bank has found that customers are often unaware that taking on further debt after their home loan has been approved, it can prompt a review of the home loan application. “We continually re-assess loans that we have approved in the window up until the bond registers in the Deeds Office and the property is transfer into the new owner’s name.”

Taking on more debt

If any new adverse information is listed against an applicant during the bond registration window, including missed payments, defaults or additional debt taken on, can trigger a review process. This process will look at the new information on the credit profile, as well as any new debt obligations.

“This can result in repricing of the home loan, a lower amount offered or, in some cases, even a complete decline of previously approved loan. This can obviously be a very distressing experience for prospective homeowners. However, the reassessment is necessary to protect the interests of both client and bank,” explained Nel.

Furthermore, overextending credit puts the homeowner at the risk of foreclosure, which, according to FNB, some consumers never fully recover from, as there is likely to be a shortfall on the loan they are still liable for. In addition, it can also impact on their good credit rating, which can negatively affect their ability to rent a property due to the credit check carried out.

How much debt can you afford?

Nel highlighted that customers are often overly optimistic about their level of affordability. He warned consumers about taking on additional credit once a home loan application has been approved.

“Consumers do not always allow themselves a margin of safety for unforeseen expenses or interest rate increases when setting their household budget. This reduces their ability to recover from unforeseen emergency expenses or interest rate increases and some then resort to taking up unsecured loans to try and get back on their feet. However, in the absence of a disciplined review of their expenditure levels, this is likely to do more harm than good in the long term,” stated Nel. 

Before taking on additional credit, including things such as store cards, vehicle finance or personal loans, you need consider your overall financial position to ensure that you are not overextended. If you have to wait until payday to afford basic household items, FNB pointed out that this could be a sign that you are living beyond your means and need to reassess your financial situation.

“I suggest that a new home owner wait until they are in their new home and have lived there for a few months before taking on new debt. This way they can be confident that their household budget still balances after some of the increased costs associated with their new property purchase,” said Nel.

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