Be realistic about how much you can spend on a home

Calculating how much you can afford to pay for a home involves a number of factors, including your income, monthly expenses, credit score, deposit available and the current interest rate.

In addition, says Gerhard Kotzé, CEO of the RealNet property group, it is best to be conservative in your estimate and leave some leeway for future interest rate increases and unexpected expenses.

"A good way to start, though, is by reviewing your credit score, because this is one of the main numbers that banks will use to decide whether to approve a new home loan application - even if you are a repeat buyer with an existing home loan. Consequently, if your score is not what it should be, or your credit record shows some problems with outstanding debts, late payments or even debt judgments, you will need to fix these before proceeding with your home buying plans."

In SA, there are many ways to find out your credit score. You can, for example, request a free credit report from any of the big credit bureaux once a year. This report will include your credit score, as well as other details about your credit history. There are also a number of online services in SA that allow you to check your credit score for free, and you may also be able to get a credit report from your bank or one of the big retail stores if you have an account with them.

However, when requesting your credit score, you need to be careful to provide accurate personal information, including your full name and ID number, or you could end up getting someone else's report. Incidentally, it's also a good idea to review your credit report regularly for any other errors or inaccuracies, because these can negatively impact your credit score. You will also quickly be able to see if anyone else has been using your identity - and good credit score -  to obtain credit they are not entitled to.

Next, he says, you should take a good look at your monthly budget and determine how much you can really afford to spend on housing, whether that is rent or a monthly bond repayment. "A general rule is that your housing costs should not exceed 30% of your gross monthly income, but if you have very little debt, you could maybe exceed that.

"Consequently, the next thing to look at is your debt-to-income ratio, which is the  percentage of your monthly income that goes towards paying off debt, including credit or store cards, cars and personal loans A good debt-to-income ratio is generally considered to be 36% or lower, and if yours is higher, you may want to pay off more debt before applying for a home loan." 

Thirdly, says Kotzé, it is important to work out what sort of deposit you could put down on your new home, because this will not only mean a smaller home loan and lower monthly repayments, but could also help you secure a lower interest rate on your loan to start with.

"And on the subject of interest rates, these will of course have a significant impact on your monthly mortgage payments over the life of your bond - and will thus affect the total amount that you pay for your home over the next 20 to 30 years. This is why it is really important to apply for your loan through a reputable mortgage originator like BetterBond, and ensure that you are getting the best possible rate and terms from the onset.

"What is more, you should always get pre-approved for a mortgage before you go house hunting. This will not only give you a really good idea of your buying power, but will also give you an edge in price negotiations with sellers, because they know you are able to secure the finance to back your offer to purchase."