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.
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