The excitement of buying a new home can soon to dismay if you don’t budget for all upfront and ongoing costs. Here’s how to plan your budget.
Buying a new home represents a whole new chapter in your life, a new start so to speak. But that excitement can soon turn to dismay and undue stress if you have not done your homework and prepared yourself for all the costs coming down the line. Some costs may be once off, some may need to be paid in advance as substantial lump sums, and some may be ongoing monthly costs. Being fully prepared for all the expenses associated with owning a home is your first step to peace of mind and being in control of your home finances.
Hollard offers a handy check list of costs associated with buying and owning a home – from the purchase process to ongoing monthly costs - so that you are fully prepared for all the financial implications:
Deposit: banks typically require a 10% deposit on the purchase price of your home, but this can be as much as 30% depending on your credit rating. If you’re in the market to buy, you’ll need to have a deposit in hard cash. It is paid upfront and once off to the transferring attorneys.
Initiation Fee: This fee is charged by the bank at the start of the loan (if you take out a bond). It can be paid upfront and as a once off fee, or capitalised to your loan amount. The fee is regulated by the National Credit Act and is currently set at a maximum of R5000.
Transfer duty: After your deposit, transfer duty is one of the biggest upfront and once-off costs when buying a property. Transfer duty is a tax levied by the government and no property can be transferred to a new owner if this is not paid. The only time transfer duty is not payable in a normal sale of property is when you are buying from a registered VAT vendor (developers as an example), in which case VAT is included in the price. The higher the value of the property you purchase, the higher the percentage of duty payable. Property transactions below a certain value are exempt from transfer duty, currently set at R900K.
Transfer Costs: Transfer cost is the professional fee that the conveyancing or transferring attorney charges in a property transaction to register your ownership of the property with the deeds office, protecting your legal title to the property. This is paid once off before registration and is not to be confused with Transfer duty.
Bond Registration Costs: For the bank to make sure that they have some form of security over the property you have taken a loan on, they will register a mortgage bond that confers certain rights on them. This bond is registered at the same time as the transfer of the property and is done by the bond registration attorney, an attorney on the bank’s panel. Similar to transfer costs, this attorney will also charge his professional fee for registering the bond, which the buyer has to pay. On average on a bond of R650k the fee is around R8.5k, and on a R2m bond it’s around R16.5k. This cost is paid once off, to the bond attorneys prior to registration of the bond.
Occupational Rent: This is a fee that is payable only if you take occupation of the property before the transfer of the property into your name has been registered and the rate is usually stipulated in your offer to purchase.
Moving costs: Shop around for the best rates and service, and remember that typically month ends are busiest and more expensive. Some removal companies offer special pricing during off-peak times, so don’t be afraid to ask.
Protect your finances with a Home Warranty: Research shows that most defaults on home loans occur within the first 18 months from when the loan is taken, because this is likely to be the time you’re most financially stretched and can least afford costs associated with hidden defects. Hollard’s Home Warranty addresses the issues around defects with a professional property inspection that is coupled to an insurance policy. This protects you as the buyer against the financial ramifications of any hidden defects that may emerge in the property for two years after taking transfer. The cost of the warranty is covered by the seller – all you have to do is ask for it in your Offer to Purchase.
Home Owners and Life Insurance: The bank will require protection to ensure that the value of their security on your loan - the house - remains intact. To achieve this, the bank will require that you take out two types of insurance which need to stay in place for as long as you have the loan with the bank.The first is Homeowners insurance which protects the bricks and mortar of the property against an insured peril such as fire, flood and so on. The second is Life cover which in the event of the death of the property owner or bond holder, the insurance will settle the outstanding bond amount so that your family is not lumbered with the debt you owe to the bank. In both instances, you have the option to take this insurance through the offering via your bond provider, or through your current preferred broker and/or insurer. It is often worth comparing and shopping around to see where you get the best offer. Where you do not use the banks offering you will need to provide proof of external insurance.
Contents Insurance: Although not obligatory, it’s highly recommended that you insure the contents of your home against loss or damage as a result of theft/burglary and other perils such as fire, flood and extreme weather conditions. This insurance is often combined with Homeowners insurance and if you have car insurance, with one insurer, which usually results in a much cheaper combined premium.
Rates and Taxes: Once the transfer is completed, you will need to register for rates and taxes as well as your water and electricity services. The municipality will require a deposit, the amount varies from municipality to municipality and is linked to the municipal value of the home.
Total cost of ownership: Owning a home comes with ongoing costs such as electricity, water and refuse removal (on your municipal account), garden and cleaning services, maintenance, painting and so on which all need to be budgeted for.
There are many costs associated with your dream home. Doing your financial homework upfront is key to having the peace of mind that you can cope with all the costs, and enjoy your new home and the making of many happy memories.