One of the most important aspects of a home loan application is the expenses section. At its core, your expense declaration is essentially the measure that banks and financial institutions use to assess your ability to afford the property you wish to purchase.
Mpho Ramatong, FNB Home Finance Division Channel Head for Housing Schemes, warns that not declaring your expenses accurately can negatively impact the home loan amount you are eventually granted in that it can lead to a lower bond being approved.
Not declaring expenses correctly can also result in you being offered a higher interest rate and ultimately, a raw deal.
“Taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” Ramatong advises.
If you want to make sure that you secure the best interest rate deal on your home loan application, these are the three mistakes to steer clear of.
1. Duplication of expenses
A lot of homebuyers make the mistake of unwittingly doubling up on expenses listed in their application. It happens commonly with people who chose to transfer large portions of their salary onto their credit card to be used on things like petrol and groceries during the month. Most people will also fill out the groceries and petrol portion of the form – essentially listing the same expenses twice.
Another common form of duplication arises in couples living together who apply for a home loan jointly.
“In this instance, only one applicant may declare shared living expenses like rent water and electricity costs. If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses,” she advises.
Everyone needs to let their hair down from time to time, so no-one is saying you can’t have an entertainment budget, but you need to be careful about not declaring an excessively high entertainment budget by failing to distinguish needs from wants.
“For example, a need could be monthly costs for educational or recreational activities. While a want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants,” says Ramatong.
3. Lying about your living expenses
Being dishonest in your application is the quickest way to ensure that it is declined – and quickly.
Remember that you’re require to submit your payslip and six months worth of bank statements among other documents, so the banks are good at picking up any disparities contained in the expenses section.
It’s not worth trying to fudge your living expenses, just be honest.