With house prices turning the corner, more buyers are looking to upgrade their properties or enter the market for the first time while it is still a buyers’ market. Make sure you know which houses for sale you can really afford before you sign any purchase offers. There are various guidelines as to how much your maximum bond repayment should be. Some advisors say payments shouldn’t equal more than 25% of your household’s take-home pay, while others say you could stretch it to 29% of gross, pre-tax monthly income, with total debt repayments not equaling more than 41% of your pre-tax income. The most common advice, however, seems to be to remember that the maximum loan amount you qualify for is likely not the amount you can afford. So which price category houses for sale can you really afford? Firstly, it is important to remember that the bond repayment is only part of the cost of owning a home. Many people wrongly think they can afford a house when the bond repayment is equal to the rent they are currently paying. Say your current rent is R4 000 per month. If you take out a bond with a monthly repayment of R4 000, financial guru Suze Orman estimates your actual total housing cost per month would be 45% more, or R5 800, when taking into account property taxes, insurance and maintenance. If you cannot afford this, you shouldn’t be taking out a loan with repayments of R4 000 a month. Before you make an offer on any houses for sale, Orman suggests you practice “paying” that amount every month. Put the 45% difference between your rent and the estimated total cost of a house in a separate savings account, and see if you can manage your cash flow over the next three to five months. If you struggle to keep up, downgrade your expectations and aim for a cheaper, more affordable house.
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