With the price of properties spiraling ever upward it can be difficult to understand how anyone can afford them. Fortunately bonds exist and can make owning a home a much more realistic prospect than attempting to save for one in cash.

A bond, otherwise known as a home loan, is a line of credit offered by a bank or financial institution to help you finance the purchase of an existing residential property. As well as covering the cost of a home, this loan may be combined with a range of facilities and added extras, such as covering legal fees, or transfer costs dependent on your needs.

This loan is then repaid to the bank, plus interest over a period of either twenty or even thirty years.

Bonds can be applied for through any bank, and you are not limited to your own institution. These banks will evaluate your loan based on your personal financial circumstances including your income, your expenses, the deposit you are willing and able to put down and your past history of paying off your loans. As such the bank will need a lot of information from you at the time you apply.

To assist the bank in determining whether they would be willing to help you, and at what cost, you will be required to provide the following:

Documents required for a home loan application:

Bank statements

Bank statements give the banks a clear idea of what your cash flow situation looks like. Well managed cash flow with plenty of left over money each month reflects a person who is living within their means and will most likely be able to pay off their loan.

Salary slips

Your salary is perhaps the most important aspect when it comes to calculating whether you can afford to pay a home loan. By law your home loan repayments may not exceed 30% of your salary before tax.

A statement of assets and liabilities

Having other assets will show the bank that you have likely paid off other loans before, and will also give them the security of knowing that if you default on the bond there is something you can sell to pay it off. Liabilities on the other hand will lower the amount they can loan you, as they need to be sure you can afford to pay off your other responsibilities as well.

A statement of your monthly expenses

This will show the bank whether you can actually afford to buy a new home. It’s no good having the income to do so if you spend that money servicing a dozen other necessary monthly obligations.

Information on your employment and credit history

An important factor that is considered in a home loan application is
past employment behaviour. Have you been employed regularly? Do you bounce between jobs? What are the chances you will be without work at any point over the next twenty years?

The bank will use this information, as well as information on the property itself, the size of your deposit and the repayment to your income ratio to decide whether it can trust you to repay the loan and determine whether the risk to them is worth it, and at what rate.

The lower the bank’s risk in lending you the funds, the better the interest rate it will offer you on that loan. Should the bank decide that the property is worth the risk, and you accept their offer, they would then provide you with the cash amount necessary to make the purchase along with any other agreed benefits.

It is therefore wise to approach numerous institutions for your loan as what one deems risky, another may deem to be safe, and the rates and amounts they are willing to loan you may differ.