In our first episode, we shared the ‘rules of thumb’ to help you on your search for the perfect property. You can read these rules here. Once you know what kind of property to look for, the next step is to consider how much home you can afford. This can often be a daunting experience, especially for first time home buyers. In this second episode, we will look at financing a property investment and share the rules of thumb that relate to successfully applying for your home loan.

**Rule one: Know how much you can afford**

Typically, no more than 28% of your gross (i.e. before tax) monthly income should go towards your housing expenses, including your mortgage payment, property taxes, and insurance.
Once you add in monthly payments on other debt, the total should not exceed 36% of your gross income.
For example: If your gross income is R60 000 a month, your housing expenses should not exceed R16 800 a month which includes your mortgage payment.
Some websites offer useful calculators to determine how much you can afford.

**Rule two: Start saving for a deposit**

Having a substantial deposit demonstrates your ability to save and manage your money which it turn increases your chances of getting loan approval.
A general guideline is to aim for 10-15% of the property value as this will likely cover registration costs as well.
For example, if you consider buying a property for R2 000 000 then this means you need to have a minimum deposit of approximately R200 000. It takes time to save this amount of money, so we recommend that you start as soon as you can. Read more about starting an investment here.

**Rule three: Work on your credit score**

Ensure that you have been meticulous about paying off your credit cards, retail accounts, loans and cell phone accounts, as this means you have a better chance of getting your home loan approved.
If you do not have a credit history, it is very unlikely that you will approved for a home loan. It is, therefore, crucial to demonstrate your ability to manage credit effectively by responsibly using a credit card or other forms of credit.
Banks continue to monitor your credit profile and conduct affordability checks for at least three months until the property registration process ends. This means you should avoid taking out additional debt as this can result in the bank repricing and, in extreme cases, declining the loan altogether.
Visit websites like Credit Union to receive a free credit overview in order to determine where you stand.

**Rule four: Be aware of extra costs**

There are a number of additional costs that are frequently forgotten about or missed, so ensure that you have researched all possible hidden costs.
Some of the fees to look out for are building inspection fees, pest inspections, solicitor or conveyance fees as well as loan initiation and property valuation fees.
For example, loan initiation fees can cost approximately R6000 depending on your bank whereas, on a bond of R 2 000 000, conveyor’s fees are approximately R16 560 excluding VAT.

By using these rules of thumb, you are well on your way to successfully apply for a home loan and invest in a property. In the third episode of this series, we will share useful guidelines for repaying your home loan. Until next time, enjoy your peace of mind in your home sweet home.

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