- The hidden costs and endless responsibilities when buying your first house home are enough to make your jaw drop.
- Bank fees, interest on bond repayments and attorney fees are some of the costs that will add to your overall payment.
- Property flaws and fixtures may cost you extra if not vetted properly.
Yes, you know the property mantra – location, location, location. And you’ve found a cute home you think you can afford, in an up-and-coming ’hood. It’s just the house you need to finally put down your roots, and climb up the property ladder. But can you truly afford it? And will it be that good an investment?
Know now that buying property will cost you much more than the asking price. Because you’ll be taking a bond from a bank and paying it off over 20 to 30 years — compound interest will result in you paying significantly more by the end.
For instance, a bond of R1 000 000 payable over 20 years at an interest of 10,25 percent will cost R9 816,43 a month, says Carol Reynolds, area principal at Pam Golding Properties. This equates to 240 instalments and a staggering R2 335 943 at full term.
“However, while it’s expensive over the period, borrowing money via a mortgage facility is by far the best option, and enables investors to ‘use other people’s money (bank’s money!)’ to grow their property portfolios,” she explains.
Save up as much as you can in advance, so you can pay as big a deposit as possible to lessen the bond repayments.
“A big deposit also improves your chance of having your offer to buy accepted and ensures a better interest rate on your home loan,” says Zakheni Dlamini, director of business development at SA Home Loans.
Also aim to increase your monthly payments whenever you have the chance (that salary increase), and use any windfalls (your yearly bonus) to whack off more on the bond. To get a bond in the first place, you’ll need a healthy credit rating, so check your status with the credit bureaus, TransUnion (www.transunion.co.za) or Experian (www.experian.co.za).
“Many people believe ‘cash is king’ when it comes to building a healthy credit score, but you actually need to have a few well-managed credit agreements that demonstrate you have ‘good’ payment behaviour,” Dlamini explains.
“A strong credit profile won’t only give you a better chance of approval, but also determines your interest rate — the better your score, the lower your interest rate,” he adds. Pay bills regularly and use your credit card without missing payments.
READ MORE | 5 ways to pay off your bond sooner
The rands and cents
These are the countless costs in the complicated purchasing process itself:
A bank initiation fee. A flat rate of R6 000, payable before the registration of your bond.
An attorney’s bond registration fee. This is to register your bond with the Deeds Office, in favour of the financial institution through which you’ll be getting your bond, explains Sifiso Msomi of the property department of Shepstone & Wylie.
An attorney’s transfer fee. This is for transferring the property from the previous owner’s name to yours. It’s calculated on a sliding scale based on the purchase price.
Transfer duty. A sum paid to the South African Revenue Service each time a property changes hands. It’s based on the value of the property, and if this is R900 000 or less, you don’t pay duty. If you’re buying from a developer, no transfer duty is payable, but you’ll need to pay VAT on the purchase price instead, Reynolds explains.
Attorneys smaller variable amounts. These range from electronic instruction fees, fees for FICA identification and verification, and postage fees, which usually amount to about R2 500.
In the excitement of buying a home, it’s easy to forget that the move itself can cost you — from transporting your possessions to getting insurance against breakage and loss in the process. You also need to budget for home repairs and maintenance from now on, to deal with anything, from plumbing problems to the garden upkeep.
It doesn’t stop there. From the time the transfer goes through, you become responsible for the rates and taxes, as well as for lights and water, household and homeowner’s insurance. Taking out homeowner’s insurance is a condition of getting your home loan, as the financial institution needs assurance that the property they rely on for security will be kept in good condition.
“If you purchase a unit in a sectional title complex or apartment block, homeowner’s insurance is the responsibility of the body corporate and will be paid for out of your monthly levy,” Dlamini says.
Although it’s not always compulsory, also consider taking out bond protection insurance to cover your bond repayments if you’re unable to pay instalments due to death or disability. If you skip an instalment, it’ll affect your credit record and increase the balance outstanding on your loan and the overall interest. If this continues, it can result in legal action, and you could lose your home.
“It’s important to realise that any difficult situation that arises in your home ownership journey is not unique and your home loan provider has mostly seen it before,” Dlamini advises.
“By communicating with your loan provider at the earliest opportunity, you benefit from a better understanding of all the options available and have the chance to choose the best one for your financial situation,” he adds.
READ MORE | 8 expert tips to surviving South Africa’s rising cost of living
Look out for any flaws
Many properties have hidden problems that can cost you later. Before buying a place, visit at different times of the day and week to make sure the ’hood truly is as quiet, clean, safe and friendly as advertised.
Check with the local SAPS and security companies regarding crime in the area, “but speaking to neighbours probably gives a better insight,” says Ross Levin, director of Seeff Atlantic Seaboard and City Bowl. Go around the house in good light, looking for defects, and ask about them.
All sale agreements now have a condition report that gets signed by both the seller and the buyers,” Levin says.
“The seller, under the new Consumer Protection Act, has a duty to disclose any defects they’re aware of, and this covers the buyer in most transactions,” he adds.
For peace of mind, though, it can be wise to pay for a home inspection service – it can save you the expense and inconvenience.
“My preference is to choose a specialist rather than an inspection company – for example, a roofing expert,” Reynolds says.
“Oftentimes, inspection companies will compile a long list of small items that aren’t material, and when buyers submit these reports to their sellers, they simply annoy the sellers and often this muddies the waters and results in the sale crashing. It’s best just to focus on larger material concerns like roofing or engineering and to ask experts in these fields to submit reports,” he advises.
Traditionally, any fixtures you see in the house before purchase, such as curtain rails, built-in cupboards, doorknobs, air conditioners, security systems and garage remotes, will become yours with the house, but some sellers sneak them out.
It’s a grey area that can be avoided by drawing up a detailed list of what you want to stay and ask your agent to ensure that the seller agrees to it. You don’t want any other unbudgeted expenses to kill the excitement of your new home.
PS: This article is meant to alert and not put you off buying property.
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