PROPERTY NEWS - Excluding those who have received an early inheritance or have been diligently saving for years, applying for a home loan is something most South Africans will have to do to afford the purchase price of a house.
Before beginning the house hunting process, it is important to know the minimum monthly earnings required to qualify for the applicable home loan.
"It is always advisable to run through a series of checks to assess whether that dream home is actually affordable," says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
"The bond that prospective homeowners can afford will depend on several factors, including a buyer's take-home pay and credit score. Getting pre-approved through a bond originator such as BetterBond is a crucial step towards determining your affordability and the price range of properties you can expect to consider. Once you have determined the right price range, you won't have to waste any time looking at properties that aren't within your budget," he explains.
There are a number of options available to make qualifying for a home loan in South Africa a reality, rather than a distant dream.
"It is tricky to provide a minimum salary required for a home loan in SA, because financial institutions are willing to offer a loan amount that is related to your income. The lower your income, the lower the loan amount for which you can qualify. Your credit score will also play a big role in determining how much a bank is willing to lend you. However, as a rule, you shouldn't be spending more than a third of your net monthly income towards your monthly bond repayments," Goslett advises.
To provide prospective buyers with a very rough idea of minimum earnings for a home loan, it can be helpful to consider what houses cost in each province and what salary you would need to qualify for on a home loan of that same value.
According to BetterBond data July 2022, to qualify for a home loan of equivalent value at the current prime rate of 9%, you'll need to earn a gross household income of the following in each province. (Calculations are based on a 20-year mortgage at the current prime rate of 9%.):
• In the Eastern Cape, the average purchase price is R1 048 847 (the most affordable of all the South African provinces), so you'll need to earn at least R32 000 per month to afford a home loan of this value.
• In the Western Cape, the average purchase price is R1 778 806 (the most expensive of the provinces), so you'll need to earn at least R54 000 per month to afford a home loan of this value.
• In KwaZulu-Natal, the average purchase price is R1 482 625, so you'll need to earn at least R45 000 per month to afford a home loan of this value.
Beyond what a buyer can qualify for, Goslett reminds buyers not to forget that the purchase price of the home is not the only cost that you need to consider.
"Not only should you make sure that there is enough room in your monthly budget after living expenses to cover the monthly bond repayments, but it is also important to have saved up enough to afford the other upfront costs that come with purchasing a house, such as the associated bond costs, transfer duties and fees," says Goslett.
"Buying a house is a smart investment towards your future financial position. It can also be helpful to speak to your local RE/MAX office about the state of the local market so that you know what to expect before you start your house-hunting journey."
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