Debt Restruct

Want to buy a house with bad credit? (Keep this in mind)

Happy couple holding a house key in front of the viewer after buying a house despite their bad credit

Buying a house with bad credit in South Africa is difficult – want to know how to do it or whether you should?

If you don’t know what to do, it will feel impossible to buy a house with a low credit score. But there is hope.

Find out when South Africans with bad credit can buy a house, how to potentially get a home loan, and what to do if your credit score is holding you back from owning a home.


Can you buy a house with bad credit in South Africa?

Yes, it is possible to buy a house in South Africa with bad credit, however, if your credit is especially bad then there is a greater chance that your home loan application will be rejected.

A credit score below 580 is considered poor, so if your credit score falls below this mark, then it may be considered ‘bad’.

If your credit score falls far enough below a rating of 580, then you may be regarded as effectively ‘blacklisted’ with the credit bureaus, in which case you will not be able to get a loan.

If you are in this situation, you will first need to clear any debt with interest in full to start repairing your credit rating. Going from a bad credit score to a good, or even , great score will have a tremendous impact on your plans to buy a house. 

The higher your credit score, the more likely your home loan application will be approved, and the lower the interest rate that you could receive. Your credit score can range between 0 to 999 in South Africa, and a credit score over 740 is considered to be really good.

Check out this post if you want to learn more about credit ratings in South Africa.


Getting a home loan with bad credit 

Even if you have bad credit, you may be able to get a mortgage. The process, however, can be more challenging and expensive if you have a poor credit history.

Consider improving your credit before buying a house if you’re not in a hurry. But if you are in a hurry, the best option is to learn about different programs for people with low credit scores. 

A bad credit score means you are likely to only be eligible for home loans at significantly higher interest rates if you want a home loan. There may be other factors other than your credit score that affect your ability to apply for a home loan. Additionally, they consider your income, expenses, employment, and the amount you’re requesting.

Lenders in South Africa are legally required to extend loans responsibly. In other words, lending money to someone who won’t be able to repay it is illegal. However, various lenders assess these criteria differently, as small overdue payments are given less weight than larger ones.

If you have a bad credit rating the best way to fix that is to conduct your accounts correctly, in other words: pay them on time, close some of them to ensure there aren’t too many visible, and to ensure that you can afford the upcoming loan — many South African use debt review to improve their long term credit score.

Also, bear in mind that you can allocate up to 30% of your gross income on your home loan. If you put a lot of effort into your finances now, you can be eligible for a home loan in a year’s time. When you think about it, a year passes quickly.


Understanding interest rates

Many buyers who need a home loan should consider their interest rate when purchasing a home. Getting a low-interest rate is essential because it affects the total amount that is paid back.

The higher your interest rate, the more you repay on the loan, and the lower your credit score, the higher your given interest rate.

Check to see if you qualify to reduce your debt instalment with our quick quiz

This is because borrowers that have bad credit are regarded as higher-risk lenders.

Over the course of your mortgage loan, even a 1% or 2% increase can lead to paying tens of thousands more in interest. Regardless of your credit score, you should compare your loan options to find the lowest rate. 


How do interest rates work in South Africa?

The country’s central bank determines and controls the national interest rates, also known as the South African Reserve Bank (SARB). Its control over the national interest rate has a direct effect on the repo rate. The repo rate or the repurchase rate, is the rate at which SARB lends money to South Africa’s private banks, such as Standard Bank, ABSA, Nedbank and First National Bank.

The prime lending rate is the interest rate at which banks are willing to lend to the public. This is set at a higher rate than the repo rate. As with the repo rate, the prime lending rate fluctuates with the national interest rate.

Banks raise their prime lending rates if borrowing costs rise. Their prime lending rate will decrease if their borrowing costs from SARB fall.

Depending on the supply and demand of funds, interest rates fluctuate.

When there is a high demand for funds and a low supply of funds, the interest rate will be higher than when there is a low demand and a large supply.


How it affects your debt 

As interest rates rise, borrowing costs increase, making a person’s debt more expensive. Because of the added pressure on their budget, individuals are likely to spend less. The purpose of fluctuating interest rates is to protect the country’s financial well-being.


How to improve your credit score before buying a house 

Here is a list of ways that you can improve your credit score. Some of them may take weeks or months to complete and others can be completed in one day.

  • Review your credit reports.
  • Pay bills on time.
  • Use 30% or less of your available credit.
  • Limit your requests for new credit.
  • Consider consolidating your debt.
  • Track your progress with credit monitoring.


For more insight into this, read our blog dedicated to this topic: How to build a strong credit record in South Africa.

Follow as many of these tips as you can if you’re considering buying a house and have bad credit:


Final thoughts

You may not have control over which way interests go; you do have control over the choices you make regarding when to borrow and invest money. And even with a bad credit score or debt accumulation, there is always time to turn things around.

It pays to get out of debt. We can help you with that. Contact us if you need help restructuring your debt before applying for a home loan.

Do you know whether you qualify?

Find out if you’re eligible to reduce your debt and protect your belongings.

Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

Start managing your money better with Debt Restruct today