Interest rates are at their lowest levels in more than 50 years, providing an affordability boost to first-time home buyers and attracting property investors. But buying a property can be an overwhelming experience, especially for first-time buyers. To help guide the process, I have put together the ultimate property buyer’s checklist.
Quick View
Build your credit score
Save up for transfer costs and a deposit
Get pre-approved
Research the area you are interested in
Find the right property
Inspect the property
Analyse the deal
Request rates, levy statements and financials
Negotiate the OTP
Use a mortgage originator
Build your credit score
Building your credit score is absolutely essential to buying a property. Your credit score tells banks how good you are at using credit and paying it back.
A high credit score tells a bank that you are a low risk customer who will pay off their loans on time and in full. A low credit score tells a bank that you are a risky customer who doesn’t have a good history of paying back debt and using it wisely.
High credit scores are rewarded with low interest rates. If you have a low credit score, banks will charge you a higher interest rate to compensate them for the extra risk they take on by loaning you money.
Since building your credit score can take up to 6 months, it is well worth getting started on this even before you start looking for a property to buy.
Save up for transfer costs and a deposit
Purchasing a property is a costly exercise as lawyers are involved and taxes may need to be paid. Transfer costs depend on the value of the property.
The typical costs involved in purchasing a property:
- Bond registration attorneys
- Conveyancing attorneys
- Bond initiation costs
- Transfer duties
I use Private Property calculator which provide a really accurate estimate of these costs. Paying a deposit isn’t necessary if you qualify for a 100% home loan, but paying a deposit will reduce your monthly installments, save you interest and help you negotiate a better rate with the bank.
Get pre-approved
Pre-approval confirms the value of the home loan you qualify for. You don’t want the nasty surprise of finding the perfect property only to learn that you don’t qualify for the home loan needed to purchase it.
This can be done free of charge by mortgage originating companies such as Ooba and Betterbond. You can calculate your affordability using Private Property calculator as well.
You should choose a property that you can comfortably afford rather than using all the credit you can qualify for.
Research the area you are interested in
Research helps you understand what makes an area special, the price of similar properties, if the area is improving or getting worse and the trends in property prices.
Good sources of data include FNB NAV Property, Lightstone Property and Property24. Don’t be afraid to pay a few hundred rands for good research rather than wasting hundreds of thousands on a bad property and bad area. Go visit the area on different days of the week and at different times.
Find the right property
Once you know how much you can afford, what you are looking for and have done your research into an area that you like, it’s time to find the right property.
Cast your net far and wide by looking on Property24, Private Property and within your network. It is helpful to enlist the help of an estate agent by letting them know your requirements and viewing as many properties as you can to understand what is out there in your price range.
Inspect the property
To avoid any nasty surprises, inspect the property for any defects such as water damage, broken cupboards, leaking taps or other plumbing issues. Don’t be afraid to ask to move any big hanging mirrors or rugs to inspect. Note any damages.
You have options here. You can factor in the cost of repairs and use this to negotiate a lower purchase price. Alternatively, you could list the items to be repaired by the owner as a condition of the sale.
Analyse the deal
Do some maths to understand how much the property will cost you each month to own. Check your budget to make sure you can afford it.
Bond instalments + levies + rates = Total monthly cost
If you are planning to rent out the property, subtract the rental amount from the total cost to work out how much cash flow you will receive or what the shortfall will be.
Total monthly costs – rental income = shortfall
It is also prudent to factor in maintenance costs. I work on 1% of property value per year as my annual maintenance costs, which I put money away for on a monthly basis.
Request rates and levy statements and financials
Whilst many property listing advertisements include a breakdown of any levies, rates and taxes for the property, it is important to request the latest statements to verify the accuracy of these figures.
If you are buying into an estate or apartment complex, request a copy of the most recent financials. It is important to check that levies collected meet or exceed the operating costs and reserve provisions of the complex.
It is also important to check if owners are paying their levies and if the reserves held are on track to pay for the planned 10 year capital and maintenance plan. Any red flags here could indicate the complex is poorly managed or that levies will need to be increased in future.
Negotiate the OTP
Once you have found the right property, the next step is to sign a formal offer to purchase (OTP). Your offer should be at least 10% lower than the advertised price. If the seller is not happy, negotiate higher in small increments whilst always bearing in mind the maximum purchase price you are willing to pay.
A word of caution: once signed by both parties, an OTP is a legally binding sale agreement which is extremely difficult to get out of. Therefore you should ONLY sign an OTP if you are certain.
Use a mortgage originator
Mortgage originators such as Ooba and BetterBond help you to find the best home loan by applying to all the banks on your behalf. This allows you to make all the banks compete to give you a loan and helps ensure you get the best interest rate and terms possible. All you need to do is fill in one application, and they do the rest. They will present you multiple quotes to choose from. All of this is free of charge as the banks pay the originators for bringing them business.
Benefits of an originator:
- Help you navigate the process and optimize your application
- Apply to multiple banks
- Negotiate rates and terms
- Increase your chances of getting approved
I hope you found these tips useful and are now equipped to buy with confidence. Here’s wishing you success in your property ventures!
Writer : Kelin Pottier