Questions you should ask when buying property
It is important that you are as knowledgeable as possible when buying a property, and especially when buying a home, which for most people is their greatest investment. Asking questions is definitely the best way of keeping yourself informed of the process and being aware of possible pitfalls. Consider yourself a detective or private investigator for the period while you are embarking on the adventure of buying a home!
What is my credit situation? How much can I afford?
An important aspect of getting a home loan approved is your credit record. It may be worthwhile to check your credit status with one of South Africa’s credit bureaus before applying for a home loan. Diminish your current debts and avoid living beyond your means, and most importantly, make sure that you are up to date with the payment of accounts. If you miss even one payment on, for example, a store credit card, this will show up on your record and will be used by banks and lending institutions to assess your potential risk as a client.
Banks will calculate your ability to repay a home loan at 25% of your gross monthly income if you are single, or 30% of the gross joint income of a couple. Whether you purchase a property for the maximum amount you can afford, or whether you are more conservative and avoid overextending yourself, will depend to some degree on where you see yourself three to four years from the initial date of purchase. If you anticipate that you will get regular salary increases, you may find that in four years’ time the original bond amount is a lot easier to repay. However, if, for example, you anticipate expanding your family in the foreseeable future or have educational commitments, and you borrow the maximum bond for which you qualify, you may find that your cash-flow will remain under severe strain for years to come.
Where and how do I apply for a home loan? Should I do this myself?
By far the majority of home loans are granted by the major banks in South Africa, although a small number (around 6% of all home loans) are granted by other lending institutions. You can apply online to any of the major banks, or you can go and see a consultant at the bank’s home loans offices. However, increasingly South Africans are opting to apply for home loans through bond originators, i.e. mortgage brokers or middlemen, who negotiate with banks and financial institutions on your behalf, and take a lot of the inconvenience and tedium out of applying to different institutions in order to compare financial products and interest rates. The option of bond originators has rapidly become very popular, and currently approximately 60% of all home loans are arranged by bond originators.
What other costs are involved in buying a property?
Over and above the amount granted to you in the form of a home loan, the following costs may be incurred when buying a property. You may be required to pay a deposit, which could be 10% or 20% of the asking price. You may have to pay occupational rent for the period before the property has been registered in your name – a monthly amount will have to be negotiated with the seller and could run to an unexpectedly large sum if there are delays in the transfer. You will have to pay transfer duty, which is a tax paid to the Receiver of Revenue. You will have to pay conveyance fees to an attorney – commonly referred to as transfer fees. Be sure to ask about all these “hidden” costs in your discussions with your bank, the bond originator (if you are using one), the seller, the estate agent and the attorney, so that you do not find yourself unexpectedly out of pocket.