How to manage your debt and get that bond.

When it comes to debt, it is rarely a good thing, except when it comes to applying for a bond. Having a well-managed credit record could count in your favor.

According to Carl Coetzee , CEO of BetterBond there are several things you can do to improve your chances to get a bond approval.

"Having some form of credit is one way of proving that you are able to manage your finances. Banks consider your credit profile when reviewing your bond application. As this includes an evaluation of whether you are able to meet your financial obligations, it is advisable to have some form of debt so that you have a proven payment track record". However, make sure this debt is based on your needs and what you can afford.

This means that you need to choose your debt wisely. For example, having a clothing account is fine, as long as you make regular payments. Try and maintain 'good' debt for essentials, rather than having multiple accounts for items that you don't necessarily need. An example of good debt, would be a loan for a car, studies or a business. A home loan is also considered to be a good debt, as it requires a long-term investment in a tangible asset.

"As with any loan, you need to know what you can afford to pay each month before you apply for a bond." says Coetzee.

BetterBond offers a range of online calculators that will help buyers make an informed decision when they start looking at homes. The home loan repayment calculator gives an indication of monthly repayments and total bond and transfer costs depending on the purchase price and prime lending rate. Use the affordability calculator to work out how much you can afford to spend on your home, based on your monthly income expenses. You can also work out how much you must save for a deposit on your home, and this is one of the factors that will count in your favor when applying for a bond.

Coetzee says, "As interest rates increase, affordability has become even more important when buying a home. These online tools make it easier to plan ahead, budget wisely and manage your bond repayments effectively." Once you have worked out your price range and how much deposit you need to save, you can apply online for a pre-approval. The pre-approval process includes a credit check, so you will have a better idea of your credit status before you apply for a bond.

Getting a pre-approval makes your bond application so much smoother, as you have already submitted all your documents, which significantly improves your chances of a bond approval. "According to BetterBond's data, it shows that clients who get a pre-approval with BetterBond has a 95% chance of getting a bond," says Coetzee.

Be mindful of splurging on expensive items on credit or opening accounts just before you submit your application. Spend within your means. If you qualify for a bond, but your household expenses and associated costs would force you to incur more debt to make it through the month, rather consider a home at a more accessible price. This way, you make your home loan form part of your good debt and make that good debt work for you in the long run as a sound investment, rather than a financial burden.

Source: Property24