4 things that determine how much a bank can give you to buy a house

Everyone dreams about owning their own house and even where that house should be. That is life. We are allowed to dream. But the reality is that the final determinant is how much money you can get to buy the house. If you had cash, you would not be reading this piece.

There are four major things that determine how much loan a bank can give you. These are:

• Your income - how much do you earn?
• The loan term - how soon do you want to repay your bond?
• The prime interest rate - what is the prevailing interest rate that your bank charges on your bond?
• The bank’s lending criteria- does your bank want a deposit or it can give you a 100 percent bond?

     

Your monthly income is the single biggest factor that determines how much you can borrow from a bank to buy property. Normally a bank will make sure that you do not spend more than 30 percent, or roughly one-third, of your monthly salary on your mortgage repayment.

It is better to work with one quarter, or 25 percent. When calculating how much you can borrow, banks also take into account other credit agreements that you have, such as if you have bought a car or furniture on credit and you have not paid up your account. The more unpaid accounts you have the less credit you will get.

If you are married you can buy property as a couple. This way you can combine your salaries and therefore qualify for a higher loan. But unless your salaries are too low, it is better to work with one salary and use the other for your upkeep or to buy other essentials like furniture or a car. But this will largely depend on how solid your marriage is and how much you trust each other.

    

Banks are governed by the National Credit Act which says that they must make sure that when they give someone a loan that the person can afford to repay the loan. If not they can be accused of “reckless lending”.

The term of your loan also determines how much you can borrow. You can get a bond for 10 years, 15 years, 20 years or even 30 years. The longer the period, the more you can borrow. The standard length is 20 years.

    

The interest rate also determines how much you can qualify for. The lower the interest rate the more you can borrow.

And lastly, the bank’s lending criteria also plays a part in the sense that if you do not pay a deposit, you actually have to buy a house that your income allows you to, but if you raise a deposit, you can buy a house with a higher value than the bank would lend you if you did not have a deposit..

    

The easiest way to find out how much you qualify for is to use online bond calculators. Every bank in South Africa that offers home loans has a bond calculator which tells you the size of loan you can get and how much your repayment would be when you feed in your gross monthly salary. Of course you should also know the prime interest rate and the repayment period.

    

We have found the calculator provided by Bondbusters to be much simpler to use. You can find it here: http://www.bondbusters.co.za/online-calculators/mortgage-installments.php

This was excerpted from Chapter 3 of our book: How to buy a house for half the price which you can buy here or here.

Lindiwe Sisulu’s 10-point strategy to deliver 1.5 million houses in the next five years

Human Settlements Minister Lindiwe Sisulu has announced a 10-point strategy to boost housing delivery in the next five years. She intends to deliver 1.5 million “housing opportunities” to reverse the 25 percent decline in the past five years. Here they are in her own words.

Number one.  We will appoint an audit company to audit some of the entities where we feel their output and management of finances are cause for concern.

Number two: We will restructure the Department to make it more adept to deal with the challenges we face. We will establish a unit headed by a DDG that is dedicated to Military Veterans and the vulnerable in our country, such as child headed households. The then Department of Housing  adopted a policy for housing for Military Veterans in 2007 and up to now  there is not a single house to show for our responsibility towards people  who fought a war for this country to be liberated from oppression.

We owe it to them to prioritise them and it seems we have been bogged down by red tape for the last seven years, which is a completely unacceptable state of affairs. This DDG unit will ensure that we can, within the next 12 months have provided a roof over the head of all 5 854 indigent military veterans. These will be housing units with a top-up from the Department of Military Veterans to make it more suitable for people as deserving as these. The Military Veterans will be drawn in to build their own houses in every province where they reside. This will be under the direct responsibility of the Deputy Minister as Builder-in-Chief.

We will also consult with the Department of Social Development to identify child-headed households, so that we can provide them with shelter on an urgent basis. And also as part of the concept of Human Settlements, we will identify those areas where women are extremely vulnerable and provide shelter for abused women, which can be used by Social Workers of Social Development. Again, this will be under the direct responsibility of the Deputy Minister as caregiver-in-Chief. I must add, Chairperson, that the Deputy Minister has already started this work by providing a house for a woman with special needs in the Western Cape.

Number three: We will encourage employer assisted housing. We believe employers, especially big employers have a responsibility to ensure their employees are housed in decent conditions. We, as government will take the lead in this by establishing a Government Employee Housing Scheme. We hope that mining companies will follow suit and so too will many others.

Number four: Derelict buildings in the inner city are a safety and health hazard and prone to being hijacked. Once occupied, the responsibility on the municipalities is onerous. We will be looking into this matter and seeking legal advice on the possibility of expropriation where we find absentee landlords. These can then be productively turned into rental stock  after they have been refurbished. In reviewing the Prevention of Illegal Evictions from and Unlawful Occupation of Land Act, 1998 we will  consider options to confiscate property from absentee landlords.

Number five: There is a great demand for affordable rental  accommodation in cities and centres of economic development for low  income earners. Rental stock at reasonable rates, that which we call Social Housing, is the way we will find sustainable provision of affordable housing.

Number six: The subsidy quantum will be reviewed because MinMec has found it is unacceptably high. It is clear that the use of brick and mortar has become too expensive and we would need to look into innovative ways of building better, but cheaper houses.

Number seven: As you are aware, on Monday we returned the 402  families to the site they originally occupied in Lwandle. I established an Inquiry and we hope to learn from this what needs to be done about the vexing question of illegal occupants of land facing us on a daily basis, and as  urbanisation grows, will increase. It is also very clear to us that we need to send a message to landowners to understand that the value of their land is an asset only for as long as it is protected and safe. By the time it has been  invaded, it loses value almost immediately. What we must all understand is that the law that we have, is intended to protect the rights of people who establish their homes and protects them in the same way as it protects the owners of private property. When removing illegal occupiers from land, due processes have to be followed.

We remain very concerned about the issue of evictions, especially as it  is happening all over the country and invariably happens outside the  prescripts of the law. The Prevention of Illegal Evictions from and Unlawful  Occupation of Land Act, 1998 was specifically crafted in response to the  large scale evictions, especially of farm workers, which was reminiscent of  Apartheid’s forced removals and was passed in recognition of the fact that  many of those who occupy land was most affected by Apartheid.

Communities living in informal settlements, even on unlawfully occupied  land, deserve and must be afforded the equal protection of the law. In the same way that private property is protected by the Constitution. The balance  is worked out in due process.

There is therefore a need to look at how the processes laid out in the Act can be improved and strengthened in order to give protections to the vulnerable of our society. The experiences that we have witnessed and that we continue to see, suggest that the requirements of the Act are not adequate enough to give affected individuals the protection that is provided in the Constitution. Accordingly, we will review the provisions of the PIE Act.

We await the outcome of the Inquiry I established to understand the circumstances of Lwandle to assist us to understand where we have gone wrong, how far we have gone wrong and learn from it, so that we are better equipped to review the PIE Act. We have to find a way of dealing with both the scourge of illegal invasions and the callous way in which evictions occur, as was the case at Lwandle.

Number eight: We want to encourage our social partners to join us in building social housing for affordable rental. This is one of the biggest shortages in our country. We do not have enough stock for people to rent affordably and because of the shortage of land, our rental stock will have to take density into account. We will have to build upwards.

Number nine: Land shortage is a dire problem for us. As you know, the HDA was established to buy and bank well located land, near work opportunities, so that we would be able to build human settlements near work opportunities. Happily the Minister of Public Works, Mr Thulas Nxesi has acceded to our request and released land for our purposes. My sincerest gratitude to him.

Number ten: The President has instructed us to form part of the revitalisation of mining towns. These are, as you know Motlosana, Emalahleni, Sekhukhune, Lephalale, West Rand and Matjhabeng. I will be meeting with the Chamber of Mines next week to discuss this matter. We already have the required experience as we worked closely with some of the Mining Houses in 2008. Where these towns are, we look forward to the involvement of Members of the NCOP, because our experience in the past has been that the most difficult part in mining towns is stakeholder relations.

What a difference R100 can make to your mortgage bond

What can you buy for R100 today? Maybe a loaf of bread, a packet of sugar, a sachet of milk, some chicken pieces, a 2.5kg packet of maize meal, a 2kg packet of rice, some tomatoes, some onions, half a dozen eggs, and it’s gone.  And this is enough for only one or two people.

But that R100 can do wonders on your bond. Say you your bond is for R300 000. If you add just R100 a month to your normal repayment, this will reduce your repayment period from 20 years to 18 years and two months and you will save about R37 700 at the current rate of interest of 9 percent.

For a R800 000 bond, an extra R100 a month will reduce your bond payment period by nine months and you will save just over R40 000. On a R1.2 million bond, you will reduce the repayment period by six months and save about R42 000.

These were the average prices of small, medium and large houses, four to five years ago.  A small house is 80-140m2, a medium house 141-220m2 and a large house 221-400m2.

According to the latest ABSA bank housing prices index, the average price of the small house was R833 100 in June. The medium-sized house averaged R1.1 million while the large house stood at R1.8million.

The rand is declining against the United States dollar and will exceed R11inthe next few months. Interest rates will also go up. When interest rates go up, this is means your monthly repayment goes up.

But it you add that R100 onto to the new repayment, you make higher savings. On the R300 000 if interest went up to 9.5 percent, R100 would reduce your repayment period by 23 months and you would save R41 000.

If the interest rate went up to 10 percent and you continued to pay R100 extra, this would still reduce your repayment period by 23 months but you would save R45 000 in interest charges.

You get the gist. If you have a bond or are intending to buy a house, please do something now because higher interests rates will make most houses unaffordable. Higher interests rates mean higher monthly repayments, and higher repayments mean you have to earn more.

My book: How to buy a house for half the price, explains everything from how much bond you qualify for on your present salary to options on how to save without stretching your budget. It is available from Amazon as an eBook for instant download or Kalahari as a hard copy.

Do you know that in a 20-year bond, you pay off your principal loan in 9 years?

When most people get their first bond, they are so excited about the easy repayment terms that they forget that they have to pay the same amount every month for 20 years, making a total of 240 months.

But more importantly they do not realise that in those 20 years they will pay more than double the bond they obtain.

Some might even experience hard times like when they lose their jobs and end up losing their homes when they fail to repay their bonds.

What most people are not aware of is that if you lose your house after nine years, you have practically paid off your principal loan. But you still owe the bank the interest.

Yes, that’s a fact. In a 20-year bond, your interest alone is the equivalent of years’ repayments.

But you can save thousands and even millions by simply paying a little extra each month, without even stretching your budget.

That little extra can save your home from repossession when you fall into hard times as it can act as an advance payment, but more importantly it will allow you to pay off your bond in a much shorter period saving up to half the interest if you maintain the payments.

It is really that simple and our book: How to buy a house for half the price shows you these easy steps and how you can really pay half the total amount that you were required to pay.

This is what Phindile Kunene, editor of the COSATU magazine, Shop Steward, said in her review the book:  "How to buy a house for half the price is a must read for all South Africans, especially those who fall outside the state low cost housing subsidy net. It is an important and timely book given the demand for housing amongst young black South Africans who either resort to buying homes through finance capital or to renting town house complexes in the country's suburbs.

"This book is an empowering tool for those currently facing the might of finance capital. It can teach you how to play the game to your benefit; how to beat the banks at their own game and how to maximise the gains out of a situation that is not designed to favour you. This alone, makes the book a good read."

The book is available from Amazon as a kindle book which you can download onto your computer or smartphone or as a hard copy from Kalahari.

Did you know that more black South African women own homes than men?

Surprise! Surprise! South Africa’s black women own more houses than their male counterparts according to the latest General Household Survey by Statistics South Africa. And they are the only racial group who beat their male folks. Coloured, Asian and white women are all beaten hands down

Stats SA says some 3.6 million black women owned homes that were fully paid-up last year while only 3.4 million black men owned fully paid-up homes. Blacks owned 7 million of the 8.3 million homes that were paid-up in South Africa.

Women in other races trailed way behind their men. Among Coloureds, 221 000 women owned fully-paid homes against 273 000 men. The gap for Asians, including Indians, was even wider. Only 53 000 woken owned fully-paid homes compared to 108 000 men. Whites fared worst with only 201 000 women owning fully-paid up homes, less than half of the 437 000 men.

But men who owned homes but were still paying for them outnumbered women across all racial groups.

Black men more than doubled their female counterparts with 339 000 men against 140 000 women. For Coloureds it was 134 000 men against 42 000 women, and 55 000 Asian men against 12 000 women. The gap for whites was even wider with 341 000 men against 77 000 women.

*If you are buying a house or intend to buy one, our book gives you advice on how to quickly pay off your house and still pay half the price. It is available as a kindle book from Amazon and a printed version from Kalahari.