When you saving enough money for a deposit in real estate investment is in itself a financial feat, it is not the only financial consideration that would-be homeowners need to make when preparing to dip their feet in the market. Having savings set aside is a vital element for homeownership preparation. However, there are also several financial blunders that potential buyers can make, which will complicate their prospects of being able to buy a property.
Mistakes to Avoid in Real Estate Investment
According to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, there are two main reasons that a favourable credit score will help. The first is that is will improve your chances of bond approval, and the second is that it will impact on the interest rate the bank is willing to give on the loan.
Try not to Incur Additional Debt
“During the real estate investment process, it is also best to avoid applying for extra credit such as store accounts or credit cards, as multiple credit enquiries will have a negative impact on your credit score. You should ideally focus on paying down any existing debt to around 30% or less of the limit and correct any errors on your credit report,” says Goslett.
Consumer debt accounts for a large percentage of a buyer’s credit score. While a late payment on any consumer debt will have a massive effect on a credit score, the type and the time since the last late payment also matter.
Avoid the Urge to Splurge
During the real estate investment process, don’t go on any credit-driven retail splurges or buy any big-ticket items such as a car. Purchasing large items on credit before applying for a bond will reduce your chances of approval, as well as the amount that the bank is willing to give them.
Even if you buy a big-ticket item with cash, it can raise flags with the lender. Large withdrawals from your account might require an explanation during the bond approval process.
Don’t Change Your Jobs
Lenders prefer applicants who have a steady, stable income and they take the length of employment into account.
“Financial institutions like it if you have a stable employment record with at least six to twelve months or more in the same job with a regular income,” says Goslett.
“If you are considering a change in career and buying a new home, you should put one decision on the back burner for the time being. Either hold out on changing jobs or on buying the property.” While it is tempting to look for a property at the full limit of what the bank is willing to give, if it is not what you can comfortably afford, it is not a good idea.
The home loan repayment is not the only monthly fee that needs to be taken into account. Try to stay within a price bracket where you can comfortably manage the monthly bond payment and have something left over. By looking at homes below your maximum limit, you will also be able to compete with other buyers in a multiple-offer situation.
Culled from Fin24 Website | Blunders to avoid when buying a home