The Bond Approval Process
Buying a property typically necessitates applying for a bond or home loan, which is included in the offer to purchase as a suspensive condition or subject to bond approval clause. Thus, the sale cannot proceed unless the bond has been approved. But what does the bond approval process entail?
Once all credit and FICA criteria have been completed, the bond approval procedure may begin. Initially, the bank’s approval is limited to the value of the bond – this is referred to as approval in principle. The approval is subject to finding value in the property as well as the requested bond amount. As per the National Credit Act No. 34 of 2005, the subject to bond approval clause will be met only when the bank has provided a detailed quote outlining the loan’s terms and conditions.
However, an individual has a legal right to decline an unaffordable quote, which cannot be overridden by a contractual condition in the purchase agreement. Thus the bond approval process is dependent upon not only the bank’s approval, but also the individual’s acceptance of the terms and conditions set out by the bank. The offer to purchase may make allowance for this process, but only within a specified period. In some instances this timeframe can be increased, either at the discretion of the real estate agent or seller’s discretion, or automatically.
Tips to Successfully Apply for a Bond
It is possible for a bond application to be rejected. A number of factors, such as a negative credit score or affordability restrictions, may lead to a bond not being approved. Before applying for a bond there are a few things that you can do to improve your chances of approval.
Don’t waste your time looking at unaffordable properties. To avoid this, it is necessary to determine an affordable price range. A financial advisor specialising in real estate may be able to assist you in determining what you will be able to afford based on your unique circumstances. A combination of monthly living expenditures, current debt obligations, and joint net surplus income is used to calculate monthly repayment affordability.
Prequalification is a hassle-free way to ensure that a bond application will be approved. The addition of this step reduces the uncertainty and stress of bond application after finding a property. Prequalified buyers are also in a more favourable position in terms of negotiating with sellers.
Your credit history findings show your payment and debt history. Frequently missing payments, or having multiple outstanding loans may negatively impact your credit rating and bond applications. However, if your credit history is in good standing, the bank will appraise the property, and upon satisfying all the necessary conditions, approve the bond application.
Delayed Bond Approval Process
The bond approval process may appear to be straightforward. However, there are factors that can delay this process. Such as, for example, when an insufficient bond amount or unfavourable bond interest rate is offered.
The Interest Rate is Unfavourable
An unfavourable interest rate may be problematic, as the subject to bond approval clause has to be met. However, as per the National Credit Act No. 34 of 2005, the buyer may decline the bond offered by the bank within five days of receipt. In addition, to protect the buyer, it may be wise to include a clause specifying the required interest rate. But in practice, setting a precise interest rate may be tricky. Instead, an approximate interest rate above prime is typically provided as a guideline.
The Bond Amount is Insufficient
It may be that the bond is approved, but for a smaller sum than needed to continue with the purchase. In which case the individual will be given a deadline to obtain the outstanding monies. If the buyer fails to raise the outstanding amount the suspensive condition has not been met. As a result, notwithstanding the approval of the bond, the sale cannot proceed without sufficient funds.
Alan Levy Attorneys: Specialist Conveyancing, Notarial Services and Property Transfers in Johannesburg
Our team of experienced conveyancing attorneys at Alan Levy Attorneys offer the best legal advice for conveyancing services, including assistance throughout the bond approval process, in Johannesburg and Gauteng. Contact Us for assistance with any of these matters.
This article does not replace professional consultation with an attorney and is not intended as legal advice. This article should be seen as an educational summary of the applicable legislation and procedures pertaining to transferring ownership of property in South Africa. Should you require assistance to transfer ownership of property, Contact Alan Levy Attorneys today.