Is ‘now’ the right time for you to take the plunge and purchase your first home?
The process can be intimidating, particularly if you’re not prepared. With some basic groundwork you can improve the odds that your first purchase will be a pleasant and rewarding experience.
Here are some important issues to consider before jumping in.
7. Have a budget and know how to use it
New buyers often underestimate the hidden costs involved with owning a home. Home ownership comes with a number of new expenses, so good money-management skills are an essential must-have.
Know exactly how much you can afford to spend on a new home. Find out where your money is coming from and where it’s going every month. Draw up a trial home-ownership budget and itemize monthly costs such as your mortgage bond repayments, utility bills, homeowner’s insurance, Rates and taxes, and maintenance and repair costs. Don’t forget to allow for extra travelling costs if you know that you’ll be commuting further to get to work.
If you can’t afford the increased expenses that come with owning a house, it’s not a good time to buy — no matter what’s happening in the real estate market.
6. Get your financial house in order
Before you decide to become a homeowner, it’s vital to ensure that your credit profile is in good shape. If not, it’s essential to take the necessary steps to repair any damage previously done.
While you don’t have to have a perfect credit record to become a homeowner, a good credit history can equate to a lower interest rate on your home loan plus a lower monthly payment.
By law, once a year you are entitled to apply for a free credit history report from each of the three major credit bureaus in South Africa – Transunion, Experian and XDS. So that’s a good place to start.
5. Have a deposit or down payment in place
The deposit or down-payment required can vary depending on the value of the home you choose and on the loan requirements of the finance institution. Typically you will need between 10% and 20% of the value of your purchase as a deposit.
A sizable down-payment provides some important advantages. Firstly, a smaller mortgage loan means lower loan repayments. Secondly you’ll start off with some equity in case you have to move earlier than expected. If your personal circumstances change due to factors beyond your control, and you’re forced to sell, you could walk away empty-handed if you made little or no down payment. For at least the first two years your payments will be absorbed by interest on the loan – you won’t be building equity.
The equity in your home can also give you an extra source of cash, in the form of security for a loan from the bank, in an emergency.
4. Get a pre-approved loan
The fear of being rejected for a home loan is generally of huge concern for most first-time home buyers. To minimize the stress, get a pre-approved home loan before looking at prospective homes. This can go a long way to help boost your confidence and it may also provide you with a big advantage in situations where there may be more than one offer on the table for a specific property.
The fact that your loan has already been approved makes your offer a more attractive proposition to the seller because of a shorter purchase process. Also there’s no chance of the offer failing at a later stage due to an unsuccessful loan application.
3. Know what your transfer costs will be on the transaction
First-time buyers often forget to allow for transfer costs, also referred to as closing costs, when making an offer on a property. Expect to pay an additional amount of anywhere between three and six percent of the total sales price for transfer costs.
Generally, buyers will receive an estimate of these costs from the finance institution when applying for the mortgage loan. There are free online calculators available for this purpose. Here’s a good one from Ooba, a leading bond originator.
2. Don’t be pressurized into making an offer
Don’t feel pressured into making an offer on the first home you see. This is a common mistake of many first-time home buyers. It’s important to see enough homes to get a feel for the property market in your chosen area, before you make a final decision.
When you think you’re ready to make an offer, work with your real estate professional to get all your questions answered before you do. There is no such thing as a stupid question. However, don’t wait too long. Remember, if you like the property, the chances are pretty good that other prospective buyers will like it too.
1. Let the buyer beware…
You are entitled to conduct a careful inspection of the entire home. Look inside cupboards, turn on taps and flush toilets. Check for signs of damp or recent repair work. Ask for a copy of the building plans so that you can establish that any building work has been approved by the local authority. If no plan is available ask the agent or the seller to get one for you.
Once you’ve signed an offer to purchase, it becomes a legally binding agreement. So it’s important to make certain that you understand the entire document. Have someone with the relevant experience, preferably an attorney, peruse the contract on your behalf and clear up any ambiguities, omissions or problem areas before you sign.