Home Loan Terminology 101 | Pre-approval | Approval in principle | Bond application

Aug. 25, 2010 - PRLog -- Property financing terminology 101

There are various permutations of wording a financing clause in a sale agreement e.g. “pre-approval of a bond application”, “bond approval in principle”, “guarantee”, “undertaking” etc, all of which, have different legal effects and create different rights and obligations, which may be critical in protecting the seller and/or purchaser’s rights.
It is imperative to therefore always check the wording of the financing clause of a sale agreement before signing it, as the risk of not doing so, isn’t worth it. I have therefore, in a nutshell, defined possible terms that one may come across, in sale agreements.

Pre-approval of a bond application: http://www.mortgagepluscc.co.za
This is a mere indication to the seller/estate agent, that the financial institution concerned would probably grant the applicant a loan against security of a property to be mortgaged for the amount of the pre-approval. This hardly ever legally binds the financial institution in any manner towards anybody.

Bond approval in principle (AIP): http://www.mortgagepluscc.co.za
Here, the financial institution approves the bond in principle, based on the documentation (including the sale agreement) furnished by the purchaser, and the purchaser’s credit history. Once the financial institution has valuated the property, it will then issue the purchaser with a final grant, whereafter the purchaser will be contacted by the relevant attorneys attending to the registration thereof. The attorney will then inform the purchaser of what documentation they require, when costs need to be paid and when documents need to be signed etc. The period from bond application to bond approval to bond registration can take anywhere from 6 weeks to 3 months.

Guarantee:
This is a written undertaking by a financial institution, to pay the seller’s conveyancer a specified amount of money upon the simultaneous registration of the bond and transfer of the property, subject to certain terms and conditions. If the sale agreement specifies a date on which a guarantee must be furnished, then the purchaser is obliged to furnish the guarantee by that date. However, if the agreement does not specify such a date, then the guarantee only needs to be furnished as and when the seller’s conveyancer is in a position to lodge the deed at the deeds office.

Undertaking:
The conveyancer acting on behalf of the financial institution/attending to the bond registration, usually issues an undertaking to pay the proceeds of the bond to the seller, and will only do so, once it is assured by the financial institution, that it will receive the proceeds of the loan (or part thereof) in order to be able to pay the seller, or if the conveyancer holds the funds in trust.

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http://www.mortgagepluscc.co.za

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