Mortgage Meaning and How a Mortgage loan works
If you are fortunate to have the cash, then purchasing property is easier as it will then only require the transfer of that property from seller to purchaser.
If on the other hand you don't have all the cash required, then the next option is to apply for a mortgage loan.
The general process of applying for a mortgage entails the following steps:
Step 1: Prepare all the information that will be needed to apply for the mortgage (see lists below of information required).
Step 2: Apply for Pre-Approval (always advisable so you know what you qualify for before you start your property hunt. A bond originator can help with this. If unsure about what you qualify for then a rough guestimate of what bond repayment you qualify for would be to calculate 30% of your gross income p/m.
Step 3: Find the property you want to put an offer on. There are many property websites on which to go searching for your dream property.
Step 4: Once you have found the property you are looking for then sign the offer to purchase and send it off to your bond originator who will submit your mortgage loan application to the bank.
Step 5: Your pre-approval, documents and offer to purchase documents will be evaluated by the bank.
Step 6: If approved then the mortgage loan will be registered against the property in question.
Step 7: The bank will instruct transfer attorneys to proceed to register the mortgage bond.
Step 8: The transfer takes place, and the bank retains the Title Deeds until the mortgage is settled, after which the title deeds are then sent to the owner.
Taking on a mortgage can be daunting however make sure you are armed with knowledge and consult professionals (ie. your bond originator, your banker, your transfer attorney, your accountant) so that your bond application process goes smooth. This will really help when you do in fact find your dream property so that you don't waste time on a disorganized and unprepared mortgage loan application process.
Frequently asked questions
What is a mortgage loan?
A mortgage is a bond that is registered to a property and in most instances the property would serve as security for that bond, meaning if you default then the bank can sell the property to recoup the debt owed.
What information is required when the general process for applying for a mortgage?
If you are an individual applying for a mortgage, then you would need to be in possession of:
- Proof of Income (if you earn income from a side hustle business or sole trading activity, then this will need to be presented as financial statements to the Bank, preferably prepared by an Accountant)
- 3 Month's Bank Statements (or 6 months if you are self-employed)
- 3 Month's Salary Slips (or 6 months if you are self-employed)
- Offer to purchase (signed by all parties)
- Identity document
- Marriage certificate and ante-nuptuals (if applicable)
If you are a Company/Trust applying for a bond:
- Offer to purchase (signed by all parties)
- Annual financial statements for the last 2 years
- Management accounts up until the end of the prior month if your financial year has already started
- A letter from your accountant confirming the income you are drawing
TIPS:
- Ensure you are in contact with your credit bureau to check your credit score status. Keeping a regular eye on your consumer profile is crucial, especially of you have a home buying plan for the future. To borrow money you need a good credit record. The credit history indicates if the mortgagee can repay the loan
- Before you apply be sure to check your debt-to-income ratio. The bank will certainly be looking at this and if you have too much debt you might in fact be declined if you won't be able to service all your debt with a mortgage loan on top of all that.
- Educate yourself on the different types of mortgages (there are pro's and cons to all of them). For example you get fixed rate mortgages and then mortgages based on the prime lending rate.
- Understand how Mortgage rates work. You can save yourself thousands to millions in the long run by making informed decisions and/or tweaks early on in the mortgage cycle
- Before applying or even looking, do your budget and include the monthly mortgage payment. See if you will be able to manage based on your current financial position. Remember to make provision for potential rate increases.
- Research private mortgage insurance and homeowner insurance so that you understand the different options available. In most cases you will be able to arrange insurers during the bond application process.
- Choose your loan term. Whether you want a long-term home loan or short-term home loan. The repayment period can be affected by the bond vs property value or can be extended beyond 20 years.
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