Buying a property in South Africa is a significant financial commitment, and the process can feel overwhelming. The good news is that with the current market leaning in favour of buyers, it's a great time to start your property ownership journey. This guide breaks down each step.
READ: New home essentials: Your move-in checklist
Paul Stevens, CEO of Just Property, demystifies the journey with this step-by-step guide to buying your first residential property in South Africa.
Step 1. Building a Strong Foundation
The importance of laying a solid financial foundation before you embark on your search cannot be overemphasised. Here are some key considerations:
Budgeting for Success: Carefully assess your income and expenses to determine a comfortable monthly bond repayment amount. Factor in additional ownership costs like rates, taxes, and levies, as well as moving expenses and potential maintenance needs and the “hidden” legal costs that apply when you buy a home (see the list in Step 5).
Saving for Success: Don't underestimate the power of a deposit. Even a small down payment can significantly reduce your loan amount, potentially lowering your interest rate and saving you money in the long run. While some lenders do offer 100% bonds, we recommend delaying your purchase until you have managed to save for a down payment. A deposit demonstrates your commitment to the purchase and can reduce your repayments significantly.
Understanding Bank Assessments: When you apply for a loan, the banks will meticulously analyse your financial health before approving a bond.
Make sure you also get the following in place while you save that deposit:
Job Security and Income Stability: Consistent employment with a healthy track record strengthens your application. Freelancers and self-employed individuals may need to provide additional documentation to demonstrate stable income.
Savings Habits: Banks look for responsible money management. Evidence of regular savings demonstrates your ability to manage finances effectively.
Debt Management: Maintain a good credit score by paying bills on time and avoiding excessive debt.
READ: First-time homebuyers' fears - how to overcome them
Step 2. Know what size bond you qualify for
Pre-qualification is key. A bond originator will assess your financial profile and pre-qualify you for a specific loan amount. This strengthens your negotiating position when making offers and demonstrates to sellers that you're a serious buyer.
Your bond originator will negotiate with various lenders on your behalf, ensuring you secure the most favourable interest rate and loan terms. They will guide you through the implications of potential interest rate hikes, give you an understanding of the different loan products you qualify for, and ensure you secure the most favourable financing option.
READ: Do's and don'ts of first-time home ownership
Step 3. Choosing Your Property
Now that you're financially prepared, it's time to find your dream home! Work with a reputable real estate agent to ensure you get the best advice. At Just Property, we understand the profound significance of finding the perfect space to live, work and thrive. Our team of over 1000 property practitioners, supported by 98 offices across South Africa and Namibia, is dedicated to providing exceptional service. Our agents have access to cutting-edge technology that streamlines the whole process, as well as a wealth of experience and knowledge. Plus, our extensive network of partners, including attorneys, conveyancers, and bond originators, ensures your buying experience is less stressful.
Whichever agency you choose, leverage their expertise as you explore neighbourhoods that resonate with you. You’ll also need to decide whether you’re looking for a sectional title or freehold.
Sectional Title (for example, an apartment) is ideal for low-maintenance living with shared amenities. It’s generally easier to secure financing for but you'll be subject to body-corporate rules and levies.
Freehold offers greater independence and the potential for future expansion. However, maintenance of the home and the entire property falls squarely on the homeowner.
When evaluating a property, consider:
Growth Potential: Research areas with a history of property value appreciation. This ensures your investment grows over time. Security impacts growth potential significantly, so find out about the crime rate in the areas you’re considering.
Long-Term Needs: Think about your future plans. If you plan to start a family, a freehold property may offer more space for expansion compared to a sectional title unit. Moving is stressful and costly. Planning for your long-term needs will avoid unnecessary expenses in the future.
READ: A four-point guide on insurance for first-time buyers
Step 4. Negotiating and Securing Your Dream Home
Once you’ve found the perfect property, don't let emotions cloud your judgement. Ideally, get a qualified professional to inspect the property for structural integrity, electrical and plumbing issues, and potential problems like pests.
If the inspection gives you the green light, ask to see the title deeds of the property. Ensure there are no restrictive clauses or limitations and that all additions to the property have been undertaken with building approvals in place.
If you’re ready to make an offer, your property practitioner will guide you through the process, helping you determine a competitive price and adding any contingencies you wish to include in the agreement (these may include repairs). They'll then present your offer to the seller's agent. Negotiation is fairly common practice, so be prepared to engage in a bit of back-and-forth until a mutually agreeable price is reached.
Step 5. Closing the Deal
Reaching the closing stage is tremendously exciting, but it can be daunting, too. Our team will be by your side, assisting with the fairly significant amount of paperwork involved.
In addition to the purchase price, there are some key costs at this point that you need to be aware of:
- Transfer Duty: A tax levied by the South African Revenue Service when ownership changes hands. Property valued below R1.1M is exempt from paying transfer duty tax.
- Transfer Costs: Legal and administrative fees associated with transferring ownership.
- Bond Registration: Costs associated with registering the bond with the Deeds Office.
- Attorney Fees: Fees for legal services rendered by your conveyancer.
- Occupational Rent: Ownership officially transfers only upon registration at the Deeds Office. If you move into your home before the transfer is complete, you will have to pay occupational rent to the seller.
- Insurance: If you’ve taken a loan, you will need home insurance – don’t forget that your possessions are not part of this package, so take an additional policy to make sure you’re covered for theft.
- Moving In: Besides paying for a removal company, if you’ve bought a freehold property, you will also have to pay connection fees and deposits for water, electricity, internet and telephone.
- Rates and taxes: For freehold properties, rates for utilities and taxes based on your area and the value of your property will have to be paid. Sectional title properties attract levies.
- Security: Don’t forget to open a contract with an approved security provider in the area. It’s a good idea to check in with your neighbours and find out who they recommend.
The Road to Wealth Creation: Your Investment Journey Begins
Buying a property is often the first step towards generational wealth creation. The knowledge and strategies outlined in this guide, along with the expertise of a reputable real estate agency, will help you to make informed decisions with confidence. Good luck as you take your first steps to a prosperous future!
READ: Homebuyers: Avoid these pitfalls by doing your financial homework
An article published on Property24 on October 12, 2018, features Mpho Ramatong, FNB Home Finance Division Channel Head: Housing Schemes, who said when lenders assess an application, affordability, which considers your total income relative to living expenses, is an important measure used to determine whether you would be able to keep up with monthly home loan instalments or not.
This can further influence the home loan amount and interest rate you would be quoted for the term of the loan.
“Therefore, taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” said Ramatong as she unpacked some of the common mistakes that consumers make when completing the expenses portion of a home loan application:
1. Duplication
Some applicants fail to get a good home loan deal due to the duplication of expenses.
For example, if you have declared funds that you prepay into your credit card monthly, which you may be using to fill up for petrol and for groceries, you need not complete the groceries and petrol expenses portion in the form.
Ramatong said another form of duplication may arise if you are co-applying with a partner or individual that you stay with. In this instance, only one applicant may declare shared living expenses. For example, rent, water and electricity costs.
If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses.
2. Dishonesty
Being dishonest about your living expenses may lead to your application being declined.
When applying for a home loan, banks require that you submit a payslip and six months’ worth of bank statements, amongst other documents. As a result, any disparity in the expenses portion of the form can easily be picked up by the bank.
3. Entertainment
Be careful not to mistakenly declare a high entertainment expense by failing to separate needs from wants.
For example, a need could be monthly costs for educational or recreational activities. A want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants, and so forth.
See what home loan you'll qualify for - click here
Finally
“If you aren’t sure about how to correctly declare expenses, it is advisable to consult your bank or an expert to avoid making costly mistakes,” said Ramatong.
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