If your household income is between R3 501 and R15 000 per month, you could benefit from a government programme that could help you put a foot on the property ladder.
As a first-time home buyer in South Africa, it’s not easy getting your foot onto the property ladder. Houses and flats in desirable areas are expensive, and it’s also difficult to get enough credit as you need to have a good credit score and ideally a deposit if your credit score is less than perfect.
However, you might qualify for a government-backed programme that could help boost your chances of getting a home loan to buy your first home. If your household income ranges between R3,501 and R15,000 per month and you are a South African citizen, you could qualify for the Finance Linked Individual Subsidy Programme (FLISP).
“The FLISP can be used to reduce the principal loan amount in order to make the home loan repayment installments affordable,” explains Dr Simphiwe Madikizela, Head of Retail Sales & Special Projects at FNB Housing Finance. “Prior to making the application, the applicant must obtain approval of a home loan from their bank.”
How can you qualify?
Under the FLISP rules, first-time home buyers can qualify for subsidies ranging between R20 000 and R87 000 once off, depending on what they earn and provided that they haven’t benefitted from a government subsidy before. You also need to have approval of the home loan from the bank – if you get rejected by the bank for a home loan you will not qualify for the FLISP.
According to the westerncape.gov.za website you must be ‘competent to contract’ – so over 18 years of age or legally married or legally divorced, and of sound mind. You can be married or co-habiting with someone to qualify for a FLISP. Singles with financial dependents can also apply.
You must be in the process of purchasing a property. If you have already bought a home, it should not have been registered on your name for more than 12 months, as applications after this window period are currently not considered.
There’s a catch though – you can’t sell the property immediately. “If the home owner sells the property within eight years of benefiting from FLISP, there is a condition that the portion of the FLISP subsidy is to be refunded by the seller,” warns Dr Madikizela. “Furthermore, the seller needs to give government first preference to purchase the property or get approval from the Department of Human Settlements to sell the house.”
First-time home-buyer tips
It’s become slightly easier to buy a home thanks to the slight decrease in interest rates in July. In September the South African Reserve Bank decided to keep interest rates unchanged so potential borrowers can breathe a sigh of relief as it looks like loans are not going to get more expensive any time soon.
If you are a first-time buyer and don’t qualify for a FLISP there are still some things you can do to make the buying process easier.
- Consider 100% bonds: If you don’t have a deposit, banks can award you all of the money. According to home loan originator BetterBond, statistics show that there has been a significant increase in the number of 100% home loans. Most of these types of bonds get awarded to first-time buyers in lower income brackets. In August, according to BetterBond CEO Shaun Rademeyer, the percentage of home loans being granted for 100% of the purchase price had risen from 39% to 41% in the previous 12 months, while the percentage of loans being granted to buyers with deposit of 10% or less had risen from 8.5% of all loans to 9.5%.
- Check the valuation of the property: Banks don’t like lending money, specifically 100% bonds, when the value of the loan is more than thatof the property. Make sure you get an evaluation of the property before applying for a bond.
- Don’t take on more debt: Yes, you often have to be in debt to get more debt. But it’s actually all about how you manage your debt that counts – not the actual amount of debt that you have. So don’t accumulate debt and concentrate on getting a clean credit score so you can qualify for a bond more easily.
- Save up for a deposit: As mentioned earlier, it is possible to get a 100% bond. But it can be far quicker and easier to obtain a mortgage if you put some of your own money down The banks see the arrangement as less risky if you take on some risk too.
- Get pre-approval: Before you put an offer down on that dream home make sure your bank will give you the money first. You could be sorely disappointed later if you don’t find out what you qualify for.
- Check your credit score: You need a good credit score to qualify for a home loan. The good news is you can obtain your credit profile for free once a year from the credit bureaus.
This article first appeared in City Press.