Buying a home arguably constitutes the largest financial commitment you’ll ever make. As such, it is a purchase that should be carefully considered and planned. So says Steven Barker, director of home loans at Standard Bank who adds that despite tough economic conditions, finance is available for those wishing to buy homes, provided they meet the necessary requirements.
“In addition to meeting the necessary financial requirements, you should also put a lot of thought into the property you intend to purchase. Buyers should, for instance, investigate the area in which the house is situated and the average value of properties in the suburb. The property should also be examined for possible defects such as poor plumbing, potential electrical problems and structural concerns such as rising damp.”
Barker also advocates a thorough understanding of the type of property earmarked for purchase as the differences between freehold and sectional title properties vary greatly.
Illustrating his point, Barker says not all sectional title complexes are run efficiently and can be burdened with outstanding debts. Poor management may also result in higher levies or special levies, which will cut into your monthly expenses and affect property values for future sale opportunities.
“And even if the complex is financially sound and well run, as a home owner, you need to be an active member of the trustee board, as important decisions are made at these meetings that will impact your pocket and property,” notes Barker.
Once you are satisfied with the location and condition of the property, the financial planning process begins. Steps to be taken in this regard include:
• Checking your credit history: when banks assess a person for a loan, their credit history plays a major part in whether they are viewed as a candidate. It also pays to ensure that any outstanding debts are settled and that any accounts you may have are correctly serviced.
Affordability
This includes:
• Making sure that you have sufficient money to pay a deposit on the house as 100% bonds are rarely awarded these days.
• Remember the additional costs. These include attorney’s fees, transfer costs and registration fees, which are roughly around 8% of the purchase price of the property.
• Enquire about the rates and taxes that will be payable on the property.
• Plan for the one-off costs such as electricity deposits and consider what additions such as added security protocols are likely to cost.
• Check what insuring the property will cost you on a monthly basis.
• Although not always a requirement, you should also consider taking out credit life cover which will cover the outstanding balance on your home loan in the event of events such as disability, retrenchment and death.
“Your planning should also take into account future financial variables such as interest rate increases. Before purchasing a property, be honest with yourself and gauge whether or not your current or future personal cash flow can cope with increased payments if interest rates should rise. By preparing a personal budget which allows for costs to increase, you will ensure that you avoid financial difficulties at a later date.”
Lastly, Barker says it’s wise to take a proactive approach to monthly bond payments when buying a house as this can yield future rewards too.
“If you buy a house and can afford to pay extra money into your bond, do so as the benefits can be significant. Any additional money paid in is credited against the account and saves on interest costs. These savings can be significant and knock years off your repayment period.
“Additional money paid in also acts as a buffer against future rates increases. If you have built up credit on your account, future increases will have less impact on you as you will already have been paying a higher amount and have credit to lean on in harder times.”