Real Estate Investor Magazine South Africa August 2015 | Page 66

LESSONS

Buying A House With Bad Credit
Top strategies on how to buy a house with a bad credit record
BY VANGILE MAKWAKWA AND MEYER DE WAAL

I

have learned that being debt free does not lead
to a good credit score. When I was buying my
apartment, this added another six months to the
process because I had to improve my credit report and
credit score.
Rent2Buy is an alternative way to buying property. It
gives you the time to buy your dream house as you fix
your credit score. You still get to buy the house that you
want but you do not get to buy it immediately, as you
still have some financial issues to fix.
Apply the following three strategies:
1 Perform credit maintenance or repair
2 Rent2Buy
3 Find the right bank through a broker, mortgage
advisor or bond originator.
Firstly, the Deed of Sale is signed. The Estate Agent’s
Deed of Sale is often used, however, this can fail if the
prospective buyer cannot get the required deposit for
the bond together. Then, the lease agreement and the
three page Option to Buy document is drafted.
The prospective buyer now has the oportunity to rent
the property. Anytime during the duration of the rental
period, the tenant can exercise their right to buy the
property once they get a bond.
The tenant now has 12 months to improve their
credit score, reduce their debt which will also improve
their affordability. Abut six months later, once the
tenat’s bond has been approved, they can buy the
property.
During that time, the buyer would pay the same
rental that she would have paid had she bought a

64

AUGUST 2015 SA Real Estate Investor

property. Let’s work on a R1 million property. You will
pay R10 000 a month to the bank, but if you rent the
same property you could be paying R7 000 for that
same property.

“The tenant now has 12 months
to improve their credit score.”
Now, take that extra R3 000 a month that is saved
and credit that to the buyer towards the deposit. After
a year you have got R36 000 saved that helps you for
the third leg of applying for a home loan, which is a
deposit. By that time, you can show the bank that you
have paid R10 000 a month, which is equal to the bond
re-payment. You have improved your credit score, you
have improved your affordability, plus you have got a
deposit.
Let’s negotiate the bond. The seller is in a good
situation because she is getting R10 000 compared to
R7 000. In addition to that we ask the buyer to take
over the responsibility to pay the rates, taxes and levies,
and that can be an extra R1 000 savings for the seller.
So, the seller used to be walking away with R6 000 a
month. Now, suddenly she gets R11 000. This incentive
is the ultimate factor in closing a deal for both parties.
The Estate Agent also gets to secure their commission.
Alternatively, the buyer can do an installment sale
concept where they can directly negotiate with the
seller to pay the property off over a period of time.

RESOURCES
Wealthy-money.com, Rent2Buy
www.reimag.co.za