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How much should you earn to qualify for a home loan in South Africa?

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Acquiring your dream home is an aspiration shared by many, but unless you’ve been fortunate enough to inherit a windfall or you’ve diligently squirreled away savings over the years, the most likely path to making that dream a reality is by applying for a home loan.

Especially in a place like South Africa, where the feasibility of prospective homeowners securing loans from banks or specialized home loan providers hinges on a multitude of factors. These factors include the size of your take-home pay, the health of your credit score, and critically, the extent of the deposit you can front-load.

Before you let your heart lock onto that charming property, it’s crucial to have a firm grasp on the kind of income you’d need to qualify for a home loan in the context of South Africa’s real estate landscape. This way, you can ensure that the cost of the house you have your eye on fits within your financial reach.

So, what exactly are the prerequisites for successfully qualifying for a home loan in South Africa? Well, it’s prudent to approach this endeavor with a series of checks and balances. Seeking pre-approval through a reliable bond originator, such as BetterBond, is a pivotal step in determining not only the scope of your financial reach but also the feasible price range for the properties you can genuinely consider.

This approach, essentially, helps you dodge the disheartening exercise of sifting through properties that are beyond your financial grasp. But before you plunge into pre-approval territory, it’s wise to do some groundwork. Prepare yourself by addressing a set of fundamental questions:

  • Are you over the age of 18 years and possess a valid South African ID?
  • Can you confidently assert that your current income is stable and predictable?
  • How’s your credit score looking?
  • Have you run your financials through a free bond calculator to gauge your affordability?
  • If you’re self-employed, or a salaried professional, have you painstakingly gathered all the documentation essential for the loan application?

A quick note here: If you fall into the self-employed category, do keep in mind that the documentation requirements are distinct from those applicable to individuals who are employed by an organization.

Now, what about the quintessential question of the minimum salary that’ll grant you access to a home loan in the South African market? Well, that’s a bit of a complex puzzle. The financial institutions in question typically base the loan amount on your income. So, the logic holds that the less you earn, the more conservative the loan amount you can qualify for.

Another crucial determinant is your credit score, which influences the financial institution’s willingness to extend credit. A general rule to heed is to avoid committing more than a third of your monthly net income to service your bond repayments.

As for the average earnings required to realistically afford a home loan? This remains a tricky query. However, let’s attempt to paint a broad picture. It’s quite helpful to consider the average housing prices in different provinces and the corresponding salary you’d need to earn in order to qualify for a home loan of equivalent value.

To illustrate, based on insights gleaned from BetterBond’s data as of July 2022, here’s the approximate gross household income you’d need in each province to qualify for a home loan under the prevailing Prime rate of 9%:

  • In the Eastern Cape, where the average purchase price hovers around R1,048,847 (making it the most affordable province), you’d need to be earning at least R32,000 per month to comfortably afford a home loan of this magnitude.
  • Shifting to the Western Cape, where the average purchase price is higher at R1,778,806, the income benchmark escalates to a minimum of R54,000 per month.
  • In KwaZulu-Natal, where homes have an average purchase price of R1,482,625, one would require a monthly income of no less than R45,000 to qualify for a mortgage of that amount.

And now, let’s explore the government’s role in aiding potential homeowners. To facilitate the entry of first-time buyers into the property market, the government has established a program known as the Finance Linked Individual Subsidy Programme (FLISP). This initiative extends a subsidy to individuals earning between R3,501 to R22,000, offering a financial boost to help cover the costs associated with purchasing a home.

But can you actually qualify for a home loan based on a single income? It’s a question that often looms large for many young South Africans with aspirations of property ownership. Interestingly, the answer may defy conventional wisdom. In that year 2018 alone, over 40,000 single females and more than 35,000 single males achieved the remarkable feat of purchasing property across South Africa.

Now, let’s tackle a somewhat overlooked aspect of the home loan application process—the additional one-time costs that can sneak up on you. In the midst of shopping for homes and scrutinizing various price tags, it’s easy to get lost in the primary purchase price of your future abode.

It’s imperative not only to ensure that your monthly budget can comfortably accommodate the bond repayments after accounting for living expenses but also to anticipate the upfront expenses tied to home buying. These include costs such as bond fees, transfer duties, and associated charges.

These considerations can make a substantial impact on your overall financial planning and must not be overlooked.
Seek guidance from seasoned professionals in the real estate arena. Purchasing a home isn’t just an investment in a property; it’s an investment in your financial future.

In this endeavor, your monthly income, expenses, and a thorough understanding of the local market dynamics will be your compass. Conversations with experts can provide invaluable insights and shape your perspective as you embark on the exhilarating path of house hunting.