How South African banks decide your home loan

Prequalification is not approval

A prequalification is an estimate of what you can afford based on your income and credit record. It costs nothing and does not bind the bank. A formal grant of the bond only comes after the bank has your signed offer to purchase and has valued the property.

What the bank checks

The big five — Absa, Standard Bank, FNB, Nedbank and Investec — apply the same four filters, weighted differently.

• Credit score: broadly, above 650 opens good rates; below 580 usually means decline.
• Affordability: after living costs and debt, the instalment should sit under roughly 30% of gross income.
• Deposit: 10% to 20% wins a better rate, though 100% bonds are still granted to strong first-time buyers.
• Property value: the bank's own valuation caps the loan, not the price you agreed.

Rate, prime and the real cost

Home loan rates are quoted against prime — 'prime less 0.5%' is better than 'prime plus 1%'. On a R1.5M bond over 20 years, a single percentage point is roughly R1,000 a month and more than R240,000 over the life of the loan. Always apply through at least two banks or a bond originator so they compete.

Costs beyond the deposit

Budget for transfer duty (nothing below the current threshold, then a sliding scale), conveyancing fees, bond registration costs, the initiation fee and FICA admin. As a rough planning figure, allow 8% to 10% of the purchase price in cash on top of your deposit.