Bond application and the Offer to Purchase
In most cases, bond approval is a core condition of the offer to purchase (OTP) becoming a legally binding contract between the buyer and seller. It is typically a suspensive condition in cases where it is not a cash sale and the purchaser in this scenario undertakes to apply for bond finance to meet his obligations as set out in the OTP.
The bond finance application process will normally only begin after a signed OTP has been accepted by the seller of the property.
It is also of great importance to manage the application process efficiently as certain timeframes and obligations are normally set out in the OTP. This may include having bond finance in place by a certain time and / or to deliver guarantees as this shows to the seller that the purchase price is secured. It is essential to provide the required financial institution or mortgage originator with the relevant documentation that they request in order to finalise any and all portions of the application process. In turn, this will ensure that relevant financial institution timeously attends to the application and can indicate if the loan has been approved in principle.
Based on the information supplied, the financial institution will assess the purchaser’s ability to repay the loan. Granting of the loan and the specific conditions of the loan agreement fall within the financial institution’s discretion and therefore may differ from lender to lender.
If further negotiations were entered into with the financial institution regarding the interest rate, purchasers have to ensure that the loan agreement signed at the attorney’s office reflect this accurately.
Financial calculations and affordability
Before a purchaser enters into an OTP and subsequently applies for bond finance, great care has to be taken when it comes to calculating monthly repayments and any other costs related to owning the property. A bond repayment calculator can be handy in this instance.
Purchasers can find themselves in a rather unpleasant situation where loan finance has been applied for and approved, only to realise after the fact that they cannot afford the monthly repayment. If the purchaser then tries to cancel the agreement, he or she might be held liable for wasted costs and / or agent commission as per the signed OTP. In addition, if a purchaser’s financial position changes, the bank is entitled to review the application based on the new information but they are under no obligation to do so.
It is good practice to see what one as a purchaser can afford before signing an offer to purchase and to then limit the property search to properties that fall within this price range. While it is not a guarantee of the loan that will be granted, it is also advisable to obtain pre-approval from a financial institution to have a clear understanding of the loan that may be acquired.
Where to apply
Normally purchasers submit and apply for loan finance through their own financial institution first, but if this is not successful, he or she can also apply to additional financial institutions.
Alternatively, to avoid this run around, purchasers can make use of the services of a mortgage originator. Since mortgage originators are the intermediary and have relationships with many financial institutions, going this route means that the purchaser can apply to multiple lenders through one channel. The purchaser can then make a more informed decision and ultimately take the best offer.
Whilst every financial institution is different, some of the basic documents and information will need to be supplied to all of them, including bank statements / salary slips, a table of income and expenditure on a monthly basis and credit history.
Once again, great care has to be taken by the purchaser when supplying the originator with information and requested documents to ensure that what is submitted on their behalf is true, accurate and correct.
Written by Wessel de Kock