What is buy to let?

It speaks for itself; buy to let is buying a property for investment purposes. Not necessarily for your own personal consumption but to make it available for rent to others. If funds are insufficient for you to acquire the intended property you may apply for a home loan in any of the banks of your choice or even financial institutions. Most banks have initiated and established various home loan packages intended for buy-to-let transactions.

The current economic condition offers an opportunity to engage in buy-to-let transactions, this is because the complexity of lending requirements consequently brought about by the National Credit Act and the present conditions is making it difficult for the majority to be eligible for a home loan program. Further, rental properties will remain higher for a long period of time. Banks have so many properties in its possession and a lot of people are selling their properties in a desperate attempt to make it through in the recession; interest rates also going down making it more convenient to make purchases for investment.

When you need to loan for investment purposes the money generated by an asset is known as gearing. Gearing is equated in ratios. For instance you are buying a property for R 1,000,000 and your loan approval is only R 500,000 in this condition your gearing is 50 percent. The present economic slowdown requires that you deposit to meet with qualifying criteria, as no bank is offering a 100 percent loan further the requirements for buy-to-let has become tighter due to the effect of the recession.

There is a criterion for buy to let home loan and it is as follows:

1. Your qualification and loan amount will be based on your credit profile, like all other loans the bank will conduct a credit assessment and investigate your capacity to pay for the loan, your other debts will be checked, your job and other sources of income. A joint income may also be used to define the maximum amount for the loan application. The minimum joint income required for this loan is around is R 30,000 a month.

2. A percentage of the potential earnings on the rental of the property may also be included as part of your income, the percentage the bank will consider depends on the bank policies. Gearing and deposit is also taken into consideration.

3. Applying for the loan requires a copy of the offer to purchase, three months bank statements, proof of address, proof of income and proof of identification. Joint loan applications or those channelled through a company requires appropriate documents to be submitted.

Other things that you have to take into consideration are the expenses or costs in running the rental services of the property like fees for the attorney, the mortgage registration, municipality and other necessary permits. Also you must select tenants with good standing who will be able to pay you and make your property more productive.