Your bond may have been approved, but don’t go out and take on more, unnecessary debt just yet. This is because some banks continue to monitor your credit profile and perform updated affordability checks up until bond registration.
What this basically means is that your affordability for your bond could change quite dramatically between bond approval and registration, and your bank could reduce the loan amount, reprice it or, worse, decline it altogether.
“We have found that consumers are often unaware that taking out further debt after their home loan is approved will trigger a review on the home loan application,” says Tommy Nel, head of credit at FNB Home Loans. “We continually re-assess loans that we have approved in the window up until the bond registers in the deeds office and the property is transferred into the new owner’s name.”
In join applications, any new, adverse information listed against any of the applicants in the bond registration window, such as missed payments or defaults or further debt taken on, triggers the review process. The reassessment considers this new information on the applicants’ credit profiles as well as any new debt obligations that have been entered into.
“This can result in repricing of the home loan, a lower amount offered or, in some cases, even a complete decline of previously approved loan,” says Nel. “This can obviously be a very distressing experience for prospective homeowners; however, the reassessment is necessary to protect the interests of both client and bank.”
Overextending credit puts potential homeowners at risk of foreclosure, from which some consumers never fully recover as there is likely to be a shortfall on the loan they are still liable for. It could also damage their good credit standing which could compromise their ability to rent a property, given credit checks.
Nel says that customers tend to be overly optimistic about their level of affordability and warns them to not take on any extra debt after a home loan application has been approved.
“Consumers do not always allow themselves a margin of safety for unforeseen expenses or interest rate increases when setting their household budget,” says Nel. “This reduces their ability to recover from unforeseen emergency expenses or interest rate increases, and some then resort to taking out unsecured loans to try and get back on their feet. However, in the absence of a disciplined review of their expenditure levels, this is likely to do more harm than good in the long term.”
Before taking on any further debt, whether store cards, personal loans or vehicle finance, consider you are not overextended. Having to wait for pay day to buy basic household items could be a sign that you could are living beyond your means and need to take action.
“I suggest that a new homeowner waits until they are in their new home and have lived there for a few months before taking on new debt,” says Nel. “This way they can be confident that their household budget still balances after some of the increased costs associated with their new property purchase.”