Hidden Costs That Surprise First-Time Home Buyers
Homeownership is not for the fainthearted. With South Africa’s economy perched precariously on the verge of a recession for several months, buying a home can be risky.
Getting a bond has become more difficult as banks have become more cautious about lending. A lot of vetting and checking is necessary before a bond is approved. The idea is to minimize the risk of defaulting on a bond. The borrower loses all the money they paid back on the bond prior to defaulting. While the bank may take possession of the house, reselling it might not recoup the outstanding balance on the bond.
- Bond initiation fees
The bank charges a one-off fee for processing the bond application. The money becomes payable upon the registration of the bond. Most banks have a facility allowing the homeowner to choose to add this fee to the total bond amount. However, it’s best to pay the fee in cash since any additions to the bond amount increase the monthly repayments.
There are three types of insurance home buyers need to have if they are to be fully protected against any adverse event.
- Life insurance
The bank will require the bondholder to take out life insurance. The insurance policy must be large enough to pay out the total outstanding on the bond in the event of the insured person’s death.
- Building insurance
It is mandatory for any bondholder to have insurance on the building. This insurance will payout in the event of unforeseeable damage to the house, such as that caused by a burst geyser.
- Household contents insurance
The furniture, appliances and other valuables in the home should be insured. If they are stolen or damaged, the homeowner can put in a claim to replace them.
- Bond registration
The value of the house determines the bond registration fee. Bond registration is the process of having all the relevant documents verified by the Deeds Office. The money is payable to the bond attorney who handles the bond registration on the buyer’s behalf.
- Transfer cost and transfer duty
If the purchase price of the house is R600,000 or more, the transaction must include transfer costs and duties. This amount cannot be included in the bond amount.
- Interest rate increases
The amount of the bond repayment is calculated according to the interest rate at the time of the application. It is not enough for buyers to make sure they have just enough money for the repayment. Prevailing economic conditions may result in the Reserve Bank increasing the interest rate, which will affect the bond repayment amount.
- Municipal fees
First-time buyers are likely to have been renting before deciding to purchase a house. Renters must pay for water and electricity. In addition to these charges, homeowners also pay the municipality rates and taxes and municipal waste collection charges, among others.