When a couple is cohabiting , especially with the hopes of buying a property together , it is imperative that they agree upfront about the ways in which they would manage their finances and who should pay for what even before begin with their home loan applications .
An affordability Assessment is one of the most looked-at aspects of a home loan application by funding institutions . This is done by calculating an applicant ’ s Surplus Income which is the residual amount that is left after all expenses are deducted from an applicant ’ s Gross Monthly Income .
Empirical evidence shows that this is one of the most common impediments that rob home-loan applicants the opportunity to own a property . A Joint Bond can in fact be one of the strategic tactics of mitigating this challenge of affordability .
A Joint Bond is a process wherein two ( or more ) people apply jointly for a home-loan .
The benefits of a Joint Bond ? When two people combine their salaries in applying for a home-loan the surplus income that the bank will look at in determining the applicants ’ affordability will be higher , thereby improving the chances of their application being approved . This is because :
• A higher surplus income will reduce the element of risk and this , by and large , with all things being equal , would motivate the bank to charge the applicants a relatively lower interest rate ( lower interest rate meaning lower monthly repayments and lower capital debt )
• This kind of collaboration would also enable the applicants not only to share the risks inherent in this process
• Excess income , when used responsibly can improve the applicants ’ chances to save money and to improve the value of the property quicker through investing in the necessary renovations
• The other added advantage is that the two applicants can choose / decide who ’ s banking account would be offered to the bank for the monthly debit-order / deductions
Possible Pitfalls of a Joint Bond
• If one of the applicants loses their source of income for some reason , the other application might feel a strain financially , resulting in the inability to keep up with the monthly repayments .
• Death of one applicant , especially in cases where the applicants fail to buy themselves life insurance , which is unfortunately no longer
SA Real Estate Investor Magazine JULY 2021 29