How do the banks determine whether they think I can afford a house?
When a bank considers your bond application, they determine affordability using two methods; “return to income” and determining your net surplus income. Return to income means that your monthly bond repayment is compared to your gross monthly salary, and worked out as a percentage. In most cases, the bank will not allow your bond repayment to be more than 30% of your gross monthly income.
To calculate surplus income, banks calculate your gross salary minus your expense deductions, including existing bond repayments, vehicle repayments, personal loan repayments, 5% of your credit card limit, 5% of your overdraft limit and the repayment of your retail accounts. Then they deduct your declared monthly expenses to work out what you have left over - the surplus - which you can use to cover your bond repayment.
02 Sep 2015
Author Riana Havenga