What to check when you get your home loan guarantee or quote from the bank

Feb 5, 2021 | Home Buyers

What to check when you get your home loan guarantee or quote from the bank!! (Updated 04 Feb 2023)What to check when you get your home loan guarantee
After reading this article, you will know:

  1. What is a home loan quote or guarantee is
  2. Why you do not just accept the first home loan quote that is presented to you
  3. What possible mistakes you should look out for in the quote
  4. What are the terms and conditions that you should look out for
  5. How and what to negotiate on the quote or guarantee before you sign it
  6. Why shouldn’t you accept the first home loan quote presented to you without review?

 

Background 

Let’s just quickly recap how we get to this point. Get a pre-approval certificate from your bond originator, indicating the home loan amount you qualify for. Go house hunting for that amount or less. Find a property you like, make an offer, and have it accepted. Return to your bond originator to apply for the actual home loan from the four major banks. Once approved, receive a quote or home loan guarantee from the banks.

This is where our story begins. 

 

What is a home loan guarantee or a quote?

Key Points to Review in Home Loan Quotes and Guarantees

  • A home loan guarantee or quote is a document from the bank that confirms that they (the bank) are willing to grant you a home loan. It further gives the terms and conditions under which they will grant you the home loan. It is basically like a contract between you and the bank that stipulates the terms of the home loan agreement. Treat a home loan quote like any other contract. Once you have signed the quote or agreed to the terms and conditions via e-mail, the bond originator will send the document back to the bank. On receipt of this signed or approved quote or guarantee, the bank will start processing the home loan. This article is to make sure that you understand what to look out for when you receive this document from the bank. 

 

  • It is very important that you read through the fine print carefully and that you agree with everything in the terms and conditions. Avoid letting emotions control your decision-making and stay level-headed while considering a home loan approval.

 

  • This is where you need to think clearly because a wrong decision can impact the next twenty or thirty years of your life (in case you are wondering why twenty or thirty years? These are normally the periods that banks grant home loans for in South Africa). 

 

Consider multiple home loan quotes 

Let’s assume you have applied for your home loan through a bond originator (Also read the article: The benefits of applying for your home loan through a bond originator). The bond originator would have submitted your application to at least four major banks in South Africa. Let’s further assume two of the banks declined your applications (for whatever reason) and two of the banks agreed to grant you the home loan. You need to make sure that your bond originator provides you with the guarantees (or quotes) from both banks that approved you. This way you can compare who has granted you the most favorable lending conditions.

 

The bond originator would normally send you the guarantees for your signature. Once you’ve signed a guarantee, you confirm that you agree to the terms and conditions. Further down in this article, you will learn what the terms and conditions are to look out for on the guarantee. We’ll also explore what and how to negotiate with the bank. 

 

Look out for mistakes in the quote or the guarantee 

Between the real estate agent assisting you to complete your offer to purchase, you are completing the home loan application, the bond originator communicating with the bank, and the bank processing your application, it is very easy for human error to slip in. Since you are the client, it ultimately rests on you to be sure what you are signing off, on is what you have asked for. 

 

To give you an example; a few years ago, I applied for a home loan. I received the quote from the bank, and I went through it with a fine-tooth comb. I then discovered a clause in the fine print that the bank is granting the loan subject to the sale of an existing property. This was most certainly not the case. I was not planning on selling any other properties. I spoke to the bond originator to find out what would give the bank that idea. We eventually discovered that I had made a mistake on the home loan application form. Accidentally ticking the block that states bond subject to sale of the existing property on the application form.

 

Luckily, I picked up this mistake. Had I only discovered the mistake after I signed, and the bank was already processing the application, it would have been a long process to get the bank to reverse the process. Chances are that we might have had to start the entire process from scratch. So be very aware of any mistakes that may appear on the quote or guarantee. 

 

You want to be sure that from your side you are doing everything in your power not to delay anything. And you do this by reading and understanding everything very well before you sign.

 

So, what should you look out for on the quote or guarantee from the bank before you sign? 

 

  • Firstly, check that the home loan amount that you have applied for is correct. You don’t want to sign off on a quote that gives you the wrong home loan amount. You might have asked for a 100% home loan, and without telling you, the bank might have decided to give you a 90% home loan. It may have also been a mistake on their side. So, check the home loan amount carefully. 

 

  • Next check that the interest rate that they’ve promised is correct. If they have offered you the loan at an interest rate of 10.5%, be 100% certain that the quote states a 10.5% interest rate and not 10.75%. Make sure to carefully check the quote for errors, as costly mistakes can occur in the long run.

 

  • Check the term of the home loan. You might have requested a 30-year down payment term, but the quote may state 20 years. If you take the home loan over 30 years your monthly installment will be lower, but you’ll pay more over the long run, and if you take the home loan over 20 years, you’ll pay more per month, but your down payment over the long run will be much less. So be sure they have given you the term that meets your personal requirements. Again, this could have a huge impact on your monthly cash flow if your monthly amount is significantly more than what you were planning on. 

 

  • Confirm the quoted home loan percentage matches the promised amount. For instance, the bond originator might have come back to you and said that the bank has given you a 100% bond. Based on this information, you decide to go ahead with the quote. However, when you receive the quote, it might state that you have been approved for only 90%. This makes a huge difference if you did not budget for that 10% deposit.  

 

  • Be sure that you agree with all the conditions that the bank has stated in the quote. Earlier, I mentioned a mistake where the quote indicated that the home loan is subject to the sale of another property. Had I not seen this mistake, I would have signed the quote, indicating that I accept the terms and conditions, and would have been unaware that the bank was waiting for me to sell an existing property which never was going to be the case. 

 

  • And lastly, the terms and conditions on the quote are quite a long list. Most people don’t bother to read it as they just blindly trust and think that they cannot change it in any case. This is the worst thing you can do. Read it carefully, and whatever you don’t understand, make sure the bond originator explains it to you before you sign. 

 

Negotiating the quote terms and conditions 

Let’s come back to our example of earlier where two of the banks are willing to give you a home loan. You must ask the bond originator to e-mail you both copies of the bank guarantees (or quotes). This is so that you can compare which of the quotes is most favorable to you. 

 

When it comes to property, remember that you can negotiate anything. Nothing is permanent or unchangeable. Negotiate better terms by asking the bond originator to go back to the banks. Negotiate for better interest rates with two good offers from Bank A and Bank B.

 

Tell the bond originator to approach Bank A with Bank B’s 100% bond offer at a 10.5% interest rate. Ask if they can beat that offer. This competition for your business may result in a revised quote from the bank that has more favorable terms. It is important to check that the changes you have negotiated are indeed reflected in the revised quote you receive.

 

Conclusion 

 

Once you are happy with all the terms and conditions you can go ahead and sign the quote or guarantee. Taking an extra day to negotiate can save you money and prevent wasting time. Clarity is power. 

 

All the best with your home loan application and happy house hunting. 

 

If this article was helpful, please share it with your friends and family. Let’s change South Africa one property transaction at a time. 

 

All the best with your home loan application and happy house hunting.

If this article was helpful, please share it with your friends and family. Let’s change South Africa one property transaction at a time.

 

Last updated: 4 February 2023

 

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