Real Estate Investor Magazine South Africa June 2018 | Page 35

FINANCING
eigner or expatriate, your application
may very well be turned down despite
your creditworthiness and being able to
afford the instalment. Or you may be
offered a lower loan amount.
Knowing your options
In this case, there are several options
to consider. If the bank grants a lower
bond, you could take a personal loan
to make up the shortfall in deposit.
However, this is expensive. It may also
reduce your affordability profile so that
the bank withdraws the home loan.
Dipping into your long term savings
and borrowing money from family or
friends are also options. If you take
money out of your business, there is
less working capital, and this reduces
the return earned from the business.
Another option is to apply for fi-
nancing from a non-bank financier.
Your individual situation would be
assessed and, provided you meet cred-
it and affordability assessments, you
could be granted finance of up to 95%
of the price of the home. Now there is
another option for home buyers. Cape
Town based company Sentinel Homes
has begun offering home finance based
on instalment sale. They will assess your
unique situation and, provided you
meet credit and affordability require-
ments, you could be granted a home
loan of up to 95% of the price of the
home.
Like with a bank bond, you would pay
a monthly instalment which should be
similar to what the bank’s bond payment
would have been within the same param-
eters. Unlike a bank bond, the balance of
your loan must be settled in full after 120
months. At that stage, you will likely qual-
ify for bank funding at a reduced rate and
reduced repayment. It may also be possible
to extend the loan for a further term.
How it works
Our model is based on instalment sale
finance, the same concept used to finance
motor vehicles and other movable con-
sumer goods. This does not change the
home purchase process, which proceeds
as usual: you find a home and sign an of-
fer to purchase. If the offer is accepted,
you approach a bank or bond origina-
tor for a home loan. If the bank offers a
smaller bond or declines the application,
you apply to Sentinel for finance. If ap-
proved, the sale is concluded and, after
the relevant conveyancing process, you
move in.
Your monthly instalment for the dura-
tion of the repayment term comprises the
interest due on the principal, a portion of
capital and a monthly service fee, just like
with a bank home loan. Interest is lev-
ied at competitive interest rates linked to
prime.
Unlike with a bank home loan, Sen-
tinel remains the registered owner of the
property until the final instalment is paid.
This has no practical effect on you as the
homeowner, as long as the instalments
are paid. If you default on payment, an
arrangement must be made immediately
to address the arrears.
When looking for a non-bank finan-
cier, it is important to find one that has
the financial backing of banks, which
perform stringent financial checks. It
must also comply with the National
Credit Act and the consumer protection
framework codified in the Alienation
of Land Act. In this way, your home is
secure, no matter what happens to the
finance company.
This new offering makes home loans
more accessible at affordable pricing. It is
no longer the end of the road if a bank
declines your application or offers less
finance than you need.
CRUNCHING THE NUMBERS
Let’s look at an example. Mr A needs finance to purchase a home worth
R1 million. Assuming Sentinel Homes approves a 90% home loan, the
cash Mr A will require is R135 263. The only difference with an instalment
sale home loan is that Mr A will not have to pay bond registration fees.
COSTS
Price of home
R1 000 000.00
Transfer duty R3 000.00
Transfer fees R24 279.00
Bond fees
Origination fee
TOTAL
R0.00
R6 037.50
R1 033 316.50
LESS 90% finance capital - R900 000.00
CASH REQUIRED R135 263.50
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