There are many elements associated with buying a property. An important and sometimes underappreciated step in the process is the prequalification and then pre-approval of a home loan. Buyers tend to start their journey at a Sunday show house, testing the waters for a property that suits them. However, without first knowing their purchasing capacity or creditworthiness, visiting a show house can be a waste of time and energy.  A foolproof way of preparing for the property buying process is to approach a bond originator or financial services consultant and ask for a prequalification and pre-approval of a home loan.

Prequalification for a home loan refers to an evaluation of creditworthiness of a potential buyer by a lender. This evaluative process is free and easy. As long as you have full-time employment and a South African citizenship, authorized lenders like Property.CoZa Financial Services will provide a basic overview of your finances and give you an estimated loan amount that will determine your price range for buying a property. Once given the estimated amount, a buyer can look at appropriately-priced houses with the knowledge of their purchasing capacity. A certificate that reflects the estimated loan amount is given to the buyer after the review. This certificate indicates the likelihood of qualifying for finance from a lender, but it is not a guarantee of finance just yet. A more rigorous process has to take place in order to get a commitment to lend.

The next step in the process is called Loan Pre-approval.  A lender preforms a pre-approval evaluation after prequalification. It is a much more in-depth review of the buyer’s financial background. The lender will look into the buyers credit score, verify their source of income and employment, review financial records and debt level, and confirm proof of assets.  This process takes around three to four days; thereafter the buyer will be issued with a pre-approval certificate. This certificate is more valuable than the prequalification certificate as it indicates that a lender has already approved their application in principle. The Pre-approval Certificate is usually valid for 90 days to accommodate potential financial changes that may occur. Within this time frame buyers will be able to view multiple properties with their pre-approval certificate in hand to demonstrate their intention as serious contenders. When a pre-approved buyer is ready to make an offer on a property within their price range, the buyer has more buying power and the lender will approve the loan amount.

“If you’re considering buying a property, take the time to speak to a bond consultant to complete a pre-qualification and pre-approval as the first step in this exciting journey.  This will give you clarity on what your loan amount will be and, if your credit rating will provide a pre-approval for a mortgage bond,” says Sandy Walsh, Managing Director at Property.CoZa.  “Armed with this document, you will have the confidence to make an offer knowing that you are ahead of other buyers and that it should be accepted by the Seller.”