There's a wealth of information out there for first-time home buyers. After all, they’re about to make the biggest financial commitment of their lives, and they probably know very little about the process. But what about second-time buyers? They need information too. ooba, South Africa’s biggest bond originator, brings you this guide for homeowners buying their second home.
What to do with the profit from the sale
Obviously, the biggest difference for second-time home owners is the fact that they already own a property. This can be advantageous in that there should be an increase in the property’s value, and that profit can serve as the deposit on the new home. There are, however, some caveats.
"If the proceeds for the deposit are coming from the sale of the existing property, it is not always possible to pay the deposit until those funds are available," says Allison Dunbar, oobaelite club consultant. "It is then common practice to provide a guarantee of the funds awaited."
She explains that it is always advisable to use the proceeds of the sale as a deposit on the second property as it will ensure a better interest rate and more favourable bank scoring because of the reduced risk.
"On the other hand, some clients may elect to pay off debt to ensure affordability for a new bond payment, and could be advised to use some of the proceeds from the sale to pay off existing debt," she says.
Although you may think that you're a shoe-in for bond approval the second time around because your financial situation has improved, don’t be too sure.
"Lending criteria have changed and you may have taken on other forms of debt, which can affect your affordability," says Dunbar.
Second-time buyers should get prequalified for a loan from a bond originator like ooba so that they can house hunt with confidence, knowing what they can afford and that there are no credit listings against their name.
"ooba's oobaqualified service calculates affordability and helps you to deal with any shortfalls in this area. We also evaluate your credit rating and then assist you with rectifying any judgements against your name," she says.
Things have changed at the banks
If you bought your first home five or ten years ago, you will find that banks have tightened up significantly on the reductions in interest rates that they are willing to offer home loan applicants.
"It is quite likely that when you apply for a new bond, you won't get as favourable an interest rate as you received on the previous bond," says Dunbar.
It's also tougher for self-employed applicants because banks are far more cautious with their lending criteria since the introduction of the National Credit Act.
"If you are self-employed, you will have to prove the sustainability of your new monthly commitment and provide adequate proof of earnings - another good reason to get prequalified," she says.
Conditional sale of your current home
Many second-time buyers will make an offer on their new home conditional on the sale of their existing home. This is necessary because it prevents the buyer from ending up having to pay a bond on two properties - which can be financially crippling. However, it can also make their offer on the new property less appealing. In most cases, the seller will continue to market the house.
"If he continues to market the property, he may receive an unconditional offer and could put the original purchaser on notice to dispense with the condition of sale of the existing property," says Dunbar. "The purchaser could apply for a mortgage loan to secure the full purchase price to be able to proceed with the sale without his existing property having to be sold - if he qualifies and if he can afford it."
She advises that while awaiting the sale of the existing property, the prospective buyer should still apply for bond finance on the new property, so that when the old property is sold, the new sale can be concluded without delay.
Shop around for your new home loan
Even if you have a good repayment record with your existing bank, it’s a good idea to shop around for the best deal on your new home loan. Sometimes one bank will only approve a loan of less than the bond you’re applying for. And it’s always worth comparing the interest rates offered, as a variance of even just half a percent can have a massive impact on your repayments in the long term.
Bonds cannot be transferred from one property to another, so each home loan application is considered in isolation.
"Bond originators like ooba will apply to multiple banks simultaneously on your behalf, ensuring that you get the best deal on your home loan," says Dunbar.
Buying a second home can be just as daunting a process as buying your first - and equally exciting too. If you don’t cling to old assumptions and educate yourself about the process with the help of experts, you will find the process goes much more smoothly.