05 Oct 5 things to consider before you purchase your first home
Buying property is probably the one of the most financially significant purchases you will make – it is therefore worthwhile to do your research and gather as many facts (both advantages and disadvantages) as possible.
Here are 5 things to consider before you buy a property:
- Clean up your credit score
The first thing banks look at is your credit score. A credit score tells a potential money lender how well you manage your finances and pay your financial obligations. It is a snapshot of your financial life.
- Stick to your budget
It is very easy to get dazzled with the added extras i.e fixtures and fittings, when viewing properties, tempting most people to think that an extra R100K or two is ok in the bigger scheme of things, because this property ticks all the boxes right?
Here is a calculation to show the actual cost you pay for not sticking to a set budget.
Let’s say your budget is R 1,300,000.00
- You put down a deposit of R100,000
- Apply and get granted a bond of R 1,200,000 with 10% interest over 20 years
- Monthly repayment: R 11 580
- Total interest: R 1 579 398
- Total payment: R 2 779 398
Vs. you opting to purchase a property that is slightly out of your budget, say R 1,400,000.00
- You also put down a deposit of R 100,000.00
- Apply and get granted a bond now of R 1,300,000.00 with 10% interest over 20 years
- Monthly repayment: R 12 545
- Total interest: R 1 711 014
- Total payment: R 3 011 014
Every Rand counts!
You will always find buyers purchasing a property that leaves them without any disposable income, as they are unable to deal with the monthly down payment as well as other costs like insurance, property tax etc. Avoid this common mistake by prudently calculating how much you can really afford. Choose a maximum price and stick to it. Even if the bank says you qualify for RX, look at your monthly expenses first and decide your affordability.
These are the documents that will be required, have them ready and on hand:
- Copy of ID
- Proof of residence
- 3 -6months bank account
- 3 – 6 months’ payslip
- Personal Assets & Liabilities Statement for loan amounts over R1 500 000
- Copy of Marriage certificate (if applicable)
- Have a deposit on hand
Although some lenders do give 100% bond, this is not always the case. It is therefore encouraged to save up a deposit before you approach a bank for financing. For the lender, it reduces the risk of lending to you and gives them confidence that you will be able to meet your financial commitments.
For you the buyer, the biggest advantage to having saved a deposit is that it will benefit in the long term. The more money put down as a deposit, the smaller the home loan application, which translates into lower monthly repayments and a lower interest payment overall.
- Beware of ‘hidden costs’ and running costs to maintain the property
Now, there are many other costs to be aware of other than the bond cost. If you are ready to purchase a property and you have decided to save for a deposit, these are costs that you will also have to pay upfront!
In our example of purchasing a R 1,300,000.00 house, you will also pay the following:
Bond Registration Cost Breakdown:
Bond registration cost (incl. VAT) R21, 390
Bank initiation fee (incl. VAT) R 6,037 Deeds office levy R 1,098
Postage, petties and other application fees (incl. VAT) R2,200
Property Transfer Cost Breakdown:
Property transfer cost (inc. VAT) R22,195
Deeds office Levy R 1,098
Transfer duty R 13,500
Postage, petties & other fees (inc. VAT) R 4,050
So, in total you are looking at:
R150K (deposit) + R30,725(bond registration costs) + R80,843 (Property transfer costs) = R221,680
Then there are running costs of owning the property i.e utilities, rates and taxes, levies and homeowner’s insurance; these depend on the location of the property and its size.
- Offer to purchase (OTP)
Another very important thing to note as you are about to purchase a property is the Offer to Purchase, this is a legally binding document one signs with an agent and it stipulates your intention to purchase a property.
As a first-time buyer especially, one can get clouded with excitement at the prospect of owning their first property and perhaps sign an OTP right away on first viewing, I’d suggest not. Rather ask for the document, read it further, ask detailed questions and only then, once comfortable and happy with what it contains, then sign.
I myself have been caught up in the above, it is a mess you do not want to go through if you want to withdraw from the agreement.
The best advice when it comes to putting your signature on the OTP document is to ask questions and more questions and don’t let the agent rush you!
Home ownership should be a joy not a burden!
This article was first written for City Press.
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