Bond Originator – The benefits of applying for a home loan through them!(Updated 31 Jan 2023)
After reading this article you will know:
- The important role of a bond originator during your home loan application process
- What to consider when you receive a home loan quote from a bank
- How to compare the different quotes from the different banks to ensure you choose a home loan package that is right for your personal needs
- Why can one bank decline your loan application but another bank approve it?
- What steps can a bond originator take to secure approval of a home loan for someone who has defaulted on a payment unintentionally?
- A personal story of how applying through a bond originator helped me time after time
- What actions will a bond originator take to support and encourage your self-employment status when applying for a bond?
- What makes a home loan application submitted through a bond originator more likely to be approved by the bank?
The role of a bond originator
A bond originator improves your chances of getting approved for a home loan by not only applying for it on your behalf but by actively advocating for you. I’ll get into more detail about that shortly.
A bond originator’s service is free and there is also no catch
For now, it is important to mention up front that the services of a bond originator are completely free. The cost is also not hidden anywhere. The bank pays a commission to the bond originator for introducing you, the home buyer, as a new client. That cost is also not added to your home loan amount. In this instance, you really do get something for mahala.
Applying through a bond originator versus applying directly with your bank
Why is it so helpful to apply for your home loan through a bond originator instead of applying directly with your bank? By applying for a home loan with only one bank, you limit yourself to either being declined or receiving a single offer with an interest rate. There is no comparison for that exceptional offer, as it stands alone with its unique and unparalleled qualities. You will not know whether that is a good or a bad deal. You may end up accepting that offer simply because you so desperately want to own your own home. In the long run that offer may cost you hundreds of thousands more than it needed to. So be aware of this.
What happens when you apply for a home loan from all four of the major banks
Tips on applying for a home at major banks:
- Let’s consider a scenario where you apply to four different banks. The offer or home loan quote might be different with each of the banks. You now have choices, and you literally choose the offer that best suits your current financial situation.
- It is the role of the bond originator to apply for a home loan, on your behalf, to all the major banks. The bond originator will motivate your case, discuss all the options with you, and make sure you get the best home loan deal that is right for you.
- Remember, you are the client. The bond originator and the bank work for you. Without you, they don’t make money. So, you hold the power.
Comparing quotes or offers from different banks
- The bond originator submits your home loan application to all the major banks in South Africa. This increases your chances of getting approved by at least one bank by actively pursuing the application process.
- Each bank will make you a different home loan offer. You need to ask the bond originator to present all the offers from the different banks to you. Request to receive it via email.. Don’t let them just give you this information over the phone.
- Don’t rush this process. The wrong decision could cost you dearly in the long run.
Let’s create a scenario…
They submitted your home loan application to the four major banks in South Africa. One declines your application while the other three return with offers or quotes. We offer you a tailored package that includes a competitive interest rate and the exact amount we are willing to lend.
Ask the bond originator to renegotiate for a better offer if you’re dissatisfied with any of the presented offers.
Let’s look at an example:
- Bank A offers a 100% home loan at an interest rate of 11.5%
- Bank B then offers a 90% home loan with an interest rate of 11%
- Bank C gives an 80% home loan at an interest rate of 10.75%
- Bank D declines your application
(Just so we are all on the same page… the interest rate is the rate at which you will be repaying the home loan. The higher the interest rate, the more you will pay back over your twenty- or thirty-year home loan term).
So, let’s consider this example…
- Had you only applied to Bank D for a home loan, you would have seen your dreams of owning your own home, blown up into thin air.
- Now you have three banks left to choose from. Even though Bank A offers you a 100% home loan, that loan comes at the highest interest, which means over time it will cost you more.
- Bank C offers the most cost-effective loan with the lowest interest rate, however, they only provide 80% of the desired amount. They will only provide R800 000 towards your R1 000 000 home purchase, leaving you responsible for the remaining R200 000. Not the ideal situation, especially if you don’t have the R200 000.
This is where you ask your bond originator to go back to Bank A and motivate why they should offer you a lesser interest rate on the home loan. In most instances the bank will consider your counteroffer because remember, you are the client, and they don’t want to lose your business. Alternatively, your bond originator should go back to bank C and ask them to increase the loan amount to 100%
So why would one bank give you a 100% bond and another bank decline your application?
Tips on why some banks decline your bond application:
- Well, the short answer… we don’t always know. We submit the same information to all banks, providing them with access to the same bank statement, payslips, and monthly expenses
- Each bank might review your affordability differently, for instance, one bank may be comfortable taking a bigger risk on you, while another bank may not be so comfortable with your affordability profile.
- A bank’s over-extension in the desired area or suburb can cause one bank to approve your application while another declines it, despite using the same information.
- Bank A may hesitate to offer another home loan in Ferndale, Randburg, and Johannesburg as they have already provided 90% of the home loans in the area.
- Assuming a massive fire erupts in Ferndale and wreaks havoc, destroying 70% of properties, Bank A will incur a substantial loss.
- They may choose to diversify their risk and stop granting loans in that area. A bank’s decision to decline or offer unfavorable terms may not reflect your creditworthiness or affordability. It may actually have to do with the area in which you are hoping to buy the property.
A personal example…
- A few years ago, I applied for home loans through a bond originator for two properties. Standard Bank alone was prepared to grant me 100% bonds on both properties. I assumed it was because I had a lot of other accounts at Standard Bank. It turned out not to be the case.
- A few years later, when my financial situation and credit score actually looked much better, I again, applied for bonds on a couple of properties, and this time around I was almost certain Standard Bank would do the same.
- However, this time around they did not only decline the applications, they wouldn’t even give a reason for turning me down. To my pleasant surprise, ABSA approved 100% bonds on all the properties at a very competitive interest rate. I have no idea what their criteria were for giving me the bonds, but I accepted and left it at that.
So, we never know for sure what a bank’s reasoning is at a particular time. I hope it is becoming clearer as to why you must always apply for your bonds through a bond originator. You never know where your dice will fall.
The bond originator will fight your battles on your behalf
A bond originator improves your chances of getting approved for a home loan by evaluating your financial situation, making recommendations, and knowing exactly what the banks want, allowing them to make a persuasive case on your behalf.
Missing a payment on a store account can harm your credit score and potentially lead to a declined home loan application. However, a bond originator can detect the missed payment and provide a motivation letter to the bank explaining the reason for the missed payment before the application is submitted.
A bond originator increases the chances of your bond application being approved by the bank as they provide professional support and guidance in the application process.
- The bank wants to protect its relationship with that bond originator because they bring the bank a lot of business and will thus do everything in its power to approve the application and keep the relationship.
- Banks also know that the bond originator has also submitted your application to at least three other banks. For this reason, they will do their best to offer the bond originator the best possible deal.
- Had you gone and submitted the application directly with one bank, they would have seen that missed payment when they did the credit check and might have decided to decline the application based on that one fault.
- Further, the bank would have known that there was no other bank competing for your business. This would have given them the power over making you an offer with their best interest at heart, instead of yours.
When it comes to trickier situations
A bond originator is necessary when applying for a bond as a self-employed individual or with a foreign national spouse. They ensure the right documentation is submitted for a successful application. The bond originator will compile everything that makes your case stronger before they submit the application.
So, it is really worth applying for your home loan through a bond originator, especially since it is a free service and does not cost you a cent. There are many bond origination companies in South Africa. Huge corporations and privately owned smaller companies both originate bonds. The bigger organizations have much more impressive systems and technologies and at times even better relationships with the banks, but because they are so big, there might not always be the personal attention that you would prefer. The smaller entrepreneurial companies don’t have the backing of the huge corporations and may not bring the bank such a lot of business, but their client service is often impeccable. Since their livelihood is dependent on you getting the approved home loan they will often fight harder for that loan. You also deal with the bond originator on a more personal level.
At the end of the day, it is completely up to you with regard to which route you want to go.
Last updated: 31 January 2023