What is a BOND ORIGINATOR?
A Bond Originator is a financial advisor that specialises in home loans. As experts in their field, they work with all the banks to help you get the best deal on a home loan possible.
They also assist you to make the best decisions for your unique circumstances. With expert advice, they make the experience as easy and stress-free as possible.
Why do I recommend a bond originator?
When I last bought a new property for myself, I thought I was very clever. This was some years ago, turns out I wasn’t as clever then ;-).
I didn’t want to use a bond originator, because I assumed it would cost me extra money. The selling agent promised me that it wouldn’t. Still, I thought she didn’t understand. That she was gullible enough to believe that they would work for free.
It’s history now
My mistrust came from an earlier incident around y2k. Bond-switching was the in-thing and the consultant was adamant that it wouldn’t cost me a cent. Then, near the end of the process, she let the truth slip out. They would add their fee onto the capital amount, so it would not cost me a cent upfront.
This was when realised that I’d be paying off their R5k fee for twenty years, and it would cost me 10k more in the long run. They also neglected to tell me about the bond activation fee and the bond registration costs. I had dodged a bullet that day, thank goodness, but I remained suspicious for years to come.
My futile mission
So it happened, seventeen years later, that I only approached my bank. As a loyal customer, I applied nowhere else. When I got my first quote from the bank I was dumbstruck. My bank had given me a very high interest rate, and I was deeply offended.
I soon realised that my private banker was hardly more than a messenger between the call centre and me. She had no more power to negotiate than me, and the final answer was a polite, but unambiguous, “take it or leave it”.
Years later a bond originator explained the process in terms I could understand. He told me that my bank had already granted many home loans in the small town we were relocating to. Thus, in the case of a natural disaster, for instance, the risk to them was very high in the area. Not only was this a consolation for my bruised ego, but it also taught me a valuable life lesson. Use the professionals!
What does a bond originator really do?
Pre-Approval
The first step in the process would be to have a Pre-Approval. They would ask you for payslips, bank statements, and an income & expenses statement. Also for consent to do full credit checks.
At this point, they pick up on any old skeletons in the closet, so to speak, giving you a chance to resolve them. It only takes one issue to negatively impact your applications at the banks. Often, applicants have medical bills they didn’t even know about. It could be a pathology lab test or an x-ray. The same with resolved credit card disputes, where some clerk had forgotten to clear the red flag.
Your Bond Originator will issue a Pre-Qualification Certificate. It shows exactly how much you’re likely to be bank-approved for. Thus turning you into what’s referred to as “a Pre-Approved buyer”. With your certificate in hand, sellers will view you as a serious buyer and a safe bet.
How much can I actually afford?
The Pre-Qualification Certificate shows you only what your limit on paper is. There are also other variables you should consider. Look at your total income and think about how much of your total budget you’re willing to pay on your bond each month.
Consider :
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your current debt
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how much do you want to save for the future?
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your children’s education
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holidays & travel and
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future home improvements.
When you’ve found the balance, you’ll be more realistic about how much you can actually afford.
Have you allowed for the hidden costs? These are often overlooked in the planning and budgeting phase, although they can add up to quite a sum.
For starters, there are the big ones such as:
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transfer costs,
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transfer duties and
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bond registration costs
Also, remember the:
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moving costs,
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repairs and maintenance to the house you’re vacating,
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renovations and repairs to the new home,
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home and household insurance,
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municipal rates and
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levies.
Advice
Bond Originators know stuff!
Friends and family know stuff too. They love telling you how much they know and what their experiences were. Although if they’re not experts in this field, get a second opinion.
You have trained and knowledgeable Home Loan Specialists at your disposal.
Allow them to give advice, answer your questions and discuss options with you. The best part is that it’s free, gratis and mahala.
Mortgage bond application
The bond originator acts as a go-between, liaising with the banks on your behalf. You complete one application, which your bond consultant will submit to all the banks for you.
WeFinance stats show that 60% of the bonds declined by one bank, get approved by another. The average approval rate of buyers who do their own applications is currently only 35%, according to the Betterbond website. For those who use bond originators this average jumps to higher than 75%. Ooba‘s stats show that the approval rate can rise to 85%. This last staggering fact for buyers with pre-approval certificates.
Bond applications can be a bit more complicated if you’re buying with a building loan. Your bond originator will know whether to process it as:
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a “plot-and-plan”
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or a “turnkey” loan,
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how much should be on retention
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and how the various financial institutions structure the progress payments.
GetGo’s website sums it up nicely. They say: “We do all the hard yards – assist with admin, pick up the paperwork, decode the jargon and offer advice, working tirelessly to get you the best deal and interest rate.”
The bank approval process
AIP
The first step in the approval process is the “AIP” (Approval In Principle).
This is where the banks look at the borrower (that’s you) and assess your creditworthiness and risk.
At this step, they would sometimes already offer an interest rate to you. Bear in mind that this interest rate may still change once they’re done with the next two steps.
The Property
Before they provide a formal quotation or grant, they do a valuation of the property. Not only does this valuation protect their investment, but also yours. You get the free benefit of a professional valuation of the property within the area.
They would also pick up if you were to over-capitalise (spend R2Mil in an area where the other houses sell for R1Mil). Or, even worse, overspend by paying too much for a build that you could in future only sell for less.
Both of these factors are especially significant when you’re building. Do you have the background to know when a building quote is outrageous or unrealistic? The bank is a valuable ally.
The Area
It occasionally happens that the buyer gets a good AIP and a favourable valuation, and still gets a very high final interest rate – as happened to me. This might be for various reasons:
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Your bank already granted too many home loans in that area or town. Their system waved a red flag because their risk is high.
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Or your bank had not granted many home loans in an area. Now it appears to be a stagnating area with low re-sale possibilities.
These variables are the exact reason why it is standard practice to apply with all the banks. It often happens that you’d get a very good interest rate from a bank other than where your accounts are. Your bond originator can now contact their dedicated consultants at your bank and negotiate on your behalf. With other approvals in hand, they have much more negotiating power than you or me.
Remember, the banks love bond originators. And why shouldn’t they, they do loads of groundwork for no pay and bring in pre-qualified business.
The final quotation or Grant
The time has come. The banks have done their vetting and asked their questions. They may even have had special requests (such as more info from the builders, more bank statements from the buyers etc).
Your Bond Originator will now present you with all the replies.
It is not uncommon to find in the pile, one that’s granted 100% bond and another that had outright declined. One more reason to rake them all in for you to compare, renegotiate and choose the best option for you.
You select the one that you wish to take this journey with, sign it and return a scan to them, the bond guys will do the rest.
Who pays the bond originator?
Everybody keeps telling us that they work for free, but that cannot be, surely they work for money like the rest of us?
Yes, they do.
After you’ve picked the bank you’ve chosen to take this journey with, the bond originator submits your signed quote for processing. Now the bank captures them on the system as the source of this deal. Your bond gets registered in the Deeds Office, and the bank pays the bond originator his commission.
This they do with pleasure, and why would they not? The bond originator did the work of three bank employees and brought them an approved deal. Everybody wins. Especially you.
Your bond originator works only on commission. He/she will bend over backwards and move mountains to get you a good deal, because only then will they get paid.
So what happens if you go straight to your bank? Do they give you a discount because they didn’t have to pay an originator? Heck no, they probably re-allocate the saving in commission towards their staff salaries. Someone still had to do the work, and that someone got a salary.
How do I choose a Bond Originator?
I recommend you follow the lead of your realtor. We, too, work only for commission. We only get the comm if you get your bond, and the transaction goes through. This is your guarantee that your real estate agent will only partner with a good bond originator. One with whom he has a trust relationship, one that performs and makes the payday happen.
You could also choose to do a pre-approval before you find a realtor. Ask around for referrals and testimonials, and check them out on HelloPeter.com and Trustpilot.com. Also, see if they have a proper website and get a feel for the company.
Once you’ve done a pre-approval, you’ll have a good idea of the level of support and service you can expect from them. If you were not 100% satisfied with the service, you can change. You are not obligated to use the same company for your final application just because they did your pre-approval.
Now you have a broad overview of what Bond Originators do, and who pays them. You also have the knowledge to make better choices than I did.
Are you interested in buying a house off-plan on the West Coast?
Then you might be interested in our article on Buying a house off plan, where to start.
Call us right away – let’s start a conversation.
More about your realtors: Sarel and Melanie
How much can I afford? Click for our Bond Repayment CALCULATOR
