LAUNCHING ON TO THE PROPERTY LADDER
Category Advice
What to know as a first-time homeowner
Owning your own home can be a big decision that essentially states you are ready to embrace adulthood, and for those that require a home loan, are ready to make a long-term financial commitment.
For most people, buying a property will remain their biggest purchase and entering the market as a first-time buyer will always be a significant financial step. Yet, the sooner you get your foot on the property ladder, the better off your investment becomes.
The initial step requires personal insight. Are you ready for a long-term financial commitment? Acquiring that dream home requires a bond, specifically money borrowed from the bank or another lending institution and repaid at the prevailing interest rates or with Shariah considerations.
Your next question - is your income appropriately stable and sufficient to support a bond? Linked to that is making sure that any debt is within manageable limits; your credit cards are not over extended; that you can keep up with your monthly expenses and your car repayments are not restricting your disposable income.
This means you require a regular monthly income, typically from full-time employment, to secure a home loan. Being self-employed does not diminish your potential, but does make it slightly more complicated as your income fluctuates.
Check your credit score through any of the multiple free apps available. Credit ratings are ranked from zero to 999 to reflect your willingness to timeously repay debt. A score of 670 and above is considered excellent, but you must aim for a minimum 610 for banks to be willing to offer you a loan.
One key element first-time homeowners must remember are the added costs. In addition to the monthly bank repayments, homeowners are responsible for municipal property rates and taxes and homeowners' insurance. The total cost should not exceed 30% of the household's combined gross monthly income, but ideally should not be higher than 25%.
The next step looks to how much you have saved towards the deposit. While 108% bonds are not uncommon, meaning new homeowners can cover the purchase cost as well as other costs associated with buying a property, banks are more willing to lend to those who have shown commitment by approaching the purchase with some of their own money.
This step also has a important long-term benefit as it reduces the monthly repayment figure. Simply put, consider the mathematics when putting down a 20% deposit and having the sundry costs covered on a R1 million property at the current 11.75% prime lending rate versus the 108% you will be repaying.
Before browsing the internet and newspaper property pages or pounding the pavements, it is advisable to get pre-approved for your home loan. This pre-approval helps to focus your search to properties that are with range of your relevant budget.
Now follows choice, specifically realistic choice. A first-time home purchase is unlikely to be your "forever home", but it is the initial venture into the market and must be suitable to fit your needs for at least five years as buying and selling too quickly isn't advisable. For example, while a one-bedroom flat might be perfect for a couple, it is not recommended when introducing children to the equation. Making the short-term financial sacrifice to invest in a two-bedroom apartment will translate into a long-term saving and a higher return on investment.
Having reached this point, the fun begins, and you can start house-hunting in the neighbourhoods you believe suit your needs when considering things like distance from work; local amenities, schools, and shops. Equally important is the bond calculator - the equation that ensures the properties you visit fall within your means.
Remember, you cannot tick off every aspect from your wish list on your first purchase, but if your preserve you will find the house that says, "This is home".
Once you have found that property, close the deal using your pre-approval.
To secure a bond, applicants must provide:
- South African identity document showing you are over 18 years old;
- salary slips showing you have been permanently employed for at least six consecutive months or self-employed for the past two years;
- the latest three salary slips from your employer or accountant if self-employed;
- the last three months' bank statements to verify your monthly income and expenditure;
- if married in community of property, your spouse must provide the same documents and
- the purchase agreement on the house you intent acquiring.
Bond originators, like ooba, will assist home buyers to secure the best possible interest rate by comparing offers from various banks and financial institutions, free of charge and with minimal hassle.
Once the seller accepts your offer, you can lodge your deposit with a reputable institution like Buyers Trust or the nominated conveyancer's trust account, to hold in trust until the property is transferred into your name and the seller receives their money.
The keys to your first step on the property ladder are now yours.
Author: Haydn Wakefield
