Buying a new home off-plan is a pretty common occurrence in today’s property market, but it can mean a long wait between the time that the buyer’s home loan application is approved, and the time when the loan is formally granted and becomes active – and this can pose a real risk for the unwary. Shaun Rademeyer, CEO of SA’s biggest mortgage originator, BetterLife Home Loans, says the sense of relief and excitement that comes with a home loan being approved can easily lead to some unwise financial choices, especially among first-time buyers.
Be smart with your purchasing decisions
“For example, it is natural to want to move into your new home with new curtains, furniture and appliances, but the latest smart-fridge might not be the best choice at this stage because you need to think twice before taking on any more debt to finance your purchases”, advises Rademeyer.
He says that a chunk out of your savings or a dramatic climb in credit or store card debt during the waiting period can seriously affect your credit score, and could cause your bank to rethink the terms of your home loan. The bank may even withdraw approval altogether if it believes you will no longer be able to afford the repayments.
“Our advice is that borrowers should in fact avoid taking on new credit of any kind at this stage and should especially put off buying anything like a new car or a luxury lounge suite”, says Rademeyer.
Put off changing jobs
During the waiting period, it’s also better for borrowers if they can avoid or delay changing jobs. “Career changes can also have an effect on a loan approval, even if they are not negative. You may be offered a better job or a position with bigger bonuses, but lenders are generally looking for stability in your earnings and employment, and will need to be notified if you decide to make a change while waiting for your new home to be completed”, explains Rademeyer.
Communication is golden
Indeed, he says, communication is the key to building a good relationship between borrower and lender. “Loan approval can come completely undone as a result of reckless spending or sudden changes that affect the homebuyer’s financial profile. This could lead to serious problems with the home builder and damage the buyer’s credit record for many years”, continues Rademeyer.
“Therefore the safest course is for the homebuyer to change as little as possible between the time a loan is approved and the completion of the new home. Steady employment and spending habits will pay off when the full financial implications of being a homeowner become known.”
Don’t rush to pack up
And finally, says Rademeyer, you shouldn’t be too hasty when packing up your existing home. “You may well need all those bank statements, tax returns and payslips again when your new home is finished and the time comes to finalise your home loan and book the moving van.”
Over spending and a change in employment can affect the home loan approval process, so once you’ve applied, rather sit tight and wait to be given the go-ahead before you consider making any other large purchases.