How Much Will I be Able to Borrow?

Affordability: this is the big question every homeowner to be wants answered. As a guideline, your installment should not be more than 25% - 30% of your regular family income, before tax and deductions. If you have your own business or earn regular overtime or sales commission, the various lenders will each have their own formula for calculating what they consider as regular income. You will need to provide some proof of earnings.

For a family where both husband and wife work, the calculation might be something like this:

• Husband salary(before deductions)R 15 700 per month

• Annual bonus(divided by 12)R 2 000 per month

• Wife salary(before deductions)R 12 200 per month

• Housing subsidy R 1500 per month

• Total regular family incomeR31 400 per month

At a 30% installment to income, this family should be able to afford a repayment of R9400 per month, which would mean their maximum loan would be R800 000 based on an interest rate of 13% p.a.

This table gives you the indicative maximum loan amounts and installments for other income levels.

 This table is based on an interest rate of 13% pa - if the interest rate is lower, you can afford a higher bond, and vice-versa. Note that this is only a rough guide; a responsible lender needs to look specifically at the unique affordability issues for each borrower.

Responsible credit lenders will therefore take a broader view of the affordability of each borrower into consideration. To do this, they will look at the Household Income compared to the Household Expenditure of the applicant(s) - including all current debt repayment commitments.

If you would like to know with more certainty what you will be able to borrow, you can apply to the lender for provisional credit approval before you buy - this is known as a pre-approval. Then you will have a much better idea of what price property you can afford.