All You Need To Know About Buying Your First Home
Home ownership doesn’t have to be a daunting process if you understand all the factors involved. It should be an exciting journey that doesn’t leave you burdened with unexpected expenses and debt. We’ve compiled a short guide on what to expect and consider when buying a home for the first time.
1. A budget based on what you can afford to repay now
In order to come up with a realistic budget take the following into consideration:
· Annual income
· Monthly expenses such as medical aid, groceries and tax
· Your deposit which should be 10 to 20% of the property’s purchase price
Generally, your monthly bond repayment should not exceed 30% of your gross monthly income.
Try this bond calculator to determine your monthly repayment in terms of a specified property value.
2. Different types of ownership
There are two types of ownership namely free hold and sectional title.
Free hold means you own and are fully responsible for the property you buy. The costs of homeowner’s insurance, municipal rates and taxes, water, sewerage, refuse removal and electricity are solely your responsibility.
Sectional title means you own a unit that forms part of a complex, and will have full or exclusive use of the common property areas. Ensure that the complex you are interested in has sound financials and is well-managed. You can also enquire about any future increases in levies or special levies for the financial year.
3. Pre-approval for a bond
It is a good idea to obtain pre-approval for a bond before you start house hunting as this will enable you to enquire about properties with confidence. Pre-approval ensures that you have met the bank’s initial lending criteria and will be able to put in a bid for a potential property. Be mindful of the fact that final approval will only be granted once your home loan application has been completed and all the information you've provided has been substantiated, including a valuation on your chosen property.
4. Additional monthly costs such as electricity, water and levies
It is also important to consider the fact that you are not only taking on the repayment of debt on a monthly basis but also additional costs such as electricity, water and levies. Gardens and pools will increase maintenance and water costs. Security costs may also become a factor if you are not living in a complex. Ensure that your budget accommodates for these factors.
5. Increasing interest rates
Increasing interest rates may make your monthly bond repayments higher depending on the type of loan you have taken out. Try put up the biggest deposit you can in order to avoid further interest fees. You can also pay off your loan sooner by paying more than the minimum monthly installment. Simply set your debit order above the minimum installment amount.
6. All fees associated with the bond application and transfer
The following fees are applicable to the transfer of a home and any bond related fees.
Deeds office fees - this is a fee charged by the deeds office for registering the new ownership of a property.
Transfer fees - transferring conveyancer's fees are costs paid to the transferring attorney who is responsible for transferring your new home from its old owner to you and to get the property registered in your name. The fee works on a sliding scale depending on the value of the property.
Transfer duty - transfer duties only apply to properties with a value greater than R750,000 and are fees payable to the South African Revenue Service.
Bond initiation fee - this is a once off cost for processing the home loan charged by the applicable bank. This can cost up to R6,000.
Bond registration costs – This is the fee paid to the registering attorneys to get your bond registered over the title deeds. The amount varies according to your home loan amount.
Use the calculator link to determine all of these costs based on your property value.
7. If the house you are interested in requires maintenance, consider how much you can afford in terms of time and maintenance costs. The age of the building will give you an indication of how much maintenance will be required in the future.
8. Building and household insurance expenses
Building insurance covers the structure of your home whereas household insurance covers any valuable personnel possessions in your home.
9. Take your time and don’t feel pressured by real estate agents
Buying a property will probably the biggest investment decision you have to make in your life, don’t be rushed or pressured by real estate agents eager to ‘seal the deal’.
10. Scope out the property by visiting at different times of day
By visiting at different times, you can get a feel for the noises and neighbours in the area of your property.
11. Utilise online property finders
Viewing properties online will give you a better understanding of the current market but actually going to view different properties will give you a true feel of the value and quality out there.
12. Inspect the plumbing
This can be done quite simply by flushing the toilets and testing the water pressure in the taps or showers. Check the cupboards and ceilings for any damp or leaking pipes also.
13. Check what is being built in the area
The last thing you want to do is to buy a property only to find that there will be building next door for the next two or three years. Even worse, that once the building is complete it will completely block out any view you once had.
14. What are your future needs?
You will have growing needs over time. These could be if you are planning to have children or working from home. Would you consider having an extra bedroom to accommodate for your future needs? Thinking ahead gives you flexibility for the future.
15. Making an offer
As a rule of thumb, your initial bid should be 5-10% lower than what you really want the outcome to be and around 8-10% lower than what the seller is asking. Consult your agent and look at sale prices of similar homes in the area. Be willing to negotiate.