EVERYTHING A FIRST-TIME BUYER SHOULD KNOW (Part 1)
Category Advice
As a first-time home buyer, arming yourself with knowledge about all the costs, processes, and procedures before you begin looking for a property, makes it a wonderful journey with few surprises. Wakefields Real Estate has compiled a four-part guide to Everything A First Time Buyer Should Know - here's Part One.
When you're ready to buy your first home, being fully aware of the little and larger related costs - some over and above the purchase price - sets you up for success. It's not only costs, but various processes and procedures - some of which you can do online - which smooth the pathway and even improve your chance of owning the home in which you fall in love.
Your starting point will be your financial position. How much can you afford to pay for a property? Do you have a deposit? Do you need a home loan? If you're employed full time, your salary will be a great determinant; if you're self-employed, there are specific, more complex requirements you'll need to fulfil.
Very importantly, you need to make sure your credit rating at the credit bureau is the best it can be. As you prepare to become a homeowner, overdue payments to creditors, arrears and so on, can be a stumbling block when you're applying for a home loan - banks are understandably averse to any risk, and will scrutinise your credit bureau score. Do whatever you can to make sure your rating is clear or cleared.
PREAPPROVAL IS KING
Increasingly, sellers want to know that when you walk through their home, you have been prequalified for a home loan of X amount. The seller is then assured that you can afford their home. This applies to all buyers, not simply first-time buyers.
Prequalification can be a straightforward online application which you make through a bond originator such as ooba. Bond originators streamline the home loan application process for you, by applying on your behalf to the major banks, requiring a single, not multiple applications. Prequalification is a simple process available through the ooba bond indicator tool - you'll get the link from an ooba consultant or your Wakefields sales consultant. This tool - a 3 step self-assessment - will require standard elements such as your salary and employment record. When the calculation is done, you'll discover two important things: what your credit bureau result looks like, and what loan amount you're likely to quality for.
Alternatively, you can get officially prequalified for a loan - in the case of ooba, you'd be given a Qualified Buyer Certificate. Just get in touch with one of their home finance specialists, and you'll follow the process as if you're applying for a home loan. This method is also very useful, because it allows you to ask all the questions about the home buying process and costs involved...without the stress of a deadline.
The Qualified Buyer Certificate is a powerful tool because it carries a particularly high success rate with bond approvals - essentially, the bank has already done the background checks on you that are required. And it's also a tool which could be used by your property consultant when negotiating price and terms of the property you want to buy.
A DEPOSIT?
Having a deposit not only reduces the amount you would require as a home loan, but also shows discipline and commitment to the home buying process, and indeed, that of the home loan application. Saving 10 to 15 percent of the home's price isn't always easy, but it's very worthwhile doing: essentially saving that percentage of your monthly income at an advantageous interest rate, until you reach your target; or, you may have family who're keen - and in a position - to help you put your foot on the property ownership ladder?
First time home buyers who may not have a deposit or the transfer and bond registration costs upfront, can apply for a full bond at 100% of the purchase price and an additional amount up to a specified % of the purchase price, to cover the *Bond Transfer and Registration costs (See Other Costs of Buying a Property, below). These loans are known as cost-inclusive loans and are generally limited to a total loan amount of R1 800 000.00 depending on the individual bank product features and parameters and, of course, the client's own affordability.
*OTHER COSTS OF BUYING A PROPERTY
Buying a property has other standard costs which you must take into account when calculating what you can afford to pay for a property. They are related to transferring the property into your name, registering a home loan, and other aspects of the process. All these costs are dependent on the value of the property - the higher the value, the higher the fee.
The major immovable additional costs are the bond registration and transfer costs. You'll also pay to have your home loan registered, and you'll pay the transferring attorney's costs. There's also Potential Mortgage Protection costs, and sometimes Building Insurance. Your bank (home loan lender) will insist you have Home Insurance in place to cover any structural damage to the property.
If you work through a mortgage originator such as ooba, their online tools - Home Loan Calculators - will do all the arithmetic for you. In a nutshell, transfer costs are paid to the conveyancing attorney who transfers the bond from the seller to the buyer (he/she is appointed by the seller); bond registration fees are paid to the attorney who registers the bond in the buyer's name (person appointed by the bank); and transfer duty is the tax on the transfer of a property BUT properties worth under R1 100,000 are exempt from transfer duty.
Home buyers need to know when the various costs are payable, as the transferring attorneys will call for those payments before the bond is registered. Unless costs are included in the home loan transaction, this often comes as a surprise to the buyer.
MOVING COSTS
Moving your furniture and goods has a price attached - shop around and find out which days are the less expensive ones on which to move - month end and weekends are clearly 'peak season', so if you can avoid those, you'll save.
You may be fortunate enough not to need to hire a removal company and can DIY it with a hired van/bakkie or enlist the help of a kind friend. Otherwise, costs range from R4 000 for a smaller load, up to R15 000 for a bigger one.
SETTING UP NEW HOME COSTS
There are costs associated with moving into a new home, some you'll need to have funds for immediately, others can wait their turn. Many of these costs you'll have time to plan for, like measuring your new windows, and altering existing curtains...searching for great prices on Must Have items, your own family downsizing and shedding furniture, and/or preloved items on auctions and social media marketplaces.
Fixed costs will be deposits for your municipal utilities - water, electricity, refuse. If you are moving into a gated community/complex, you'll have a monthly levy to pay. You'll also be paying rates on a freehold property, determined by the municipality, and based on the value of the property.
Next month:
PART 2 - THE HOME SELECTION PROCESS, specifically how to make an offer; the negotiation of the sales agreement and everything else you should look out for.
Author: Myles Wakefield
