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