A VEXING QUESTION: TO RENT OR BUY?
Buying a home for the first time is a big decision and all aspects of this financial and long-term commitment should be weighed up carefully.
Here are a few guidelines that outline the fundamental differences between renting and buying:
How you are faring financially is possibly the most important factor when deciding to buy a home.
Buying a home attracts upfront costs that need to be budgeted for. For example, a R500 000 home will attract R10 000 in bond costs, which is the amount needed to register the bond with the deeds office.
While there is no transfer duty on this amount, which is the tax owed to the SA Revenue Service, there are still transfer costs of R12 100, which are the fees paid to the conveyancing agency for its services.
If you secure an interest rate of prime plus one (10.5%), your monthly repayments on a R500 000 bond will be R4 992.
These are not your only monthly costs. As a homeowner, you are also responsible for rates and taxes, levies (if you live in a complex), water, and electricity and household insurance for the goods and the structure.
You should also budget a little extra to be safe. Maintenance of the property is up to the homeowner. If you are buying, ensure you budget for ongoing maintenance. Set aside money
every month for an unforeseen problem, so that you don’t land up in debt to keep your house in good order.
You will need to provide a deposit, which is normally a month’s rent, in addition to the rent for your first month. The deposit is used to cover any damage when you leave the unit or house.
Once the deposit is paid, you will only be responsible for paying for the rent, electricity and water monthly, or as set out in your lease agreement.
In most cases, you will be expected to have your own household insurance. This is to cover your personal goods that are in the rented house in case of a burglary or a fire. It is the homeowner’s responsibility to have building insurance, which covers the actual structure of the rental.
If you can afford the bond, the additional monthly payments and the money for added costs, then you are probably in a good position to buy.
The bond repayments may seem steep in the beginning, but after a few years your income position will be stronger and towards the end of the 20-year period, the bond will not have increased with inflation. You should be able to afford the repayments and there will be an increase in the capital value of the home.
When will renting put you in a better financial position?
There are a few factors to consider when renting. One is your long-term position. Do you move around a lot, are you planning to travel or take a break from your employment at any stage?
Buying is a long-term commitment. It isn’t an easy process to sell a house, which may set you back financially if you have to sell in a relatively short time.
If you are renting, you can build up your financial position so that you can be a homeowner one day.
There are advantages to renting and owning your own home. Make sure you consider all the different aspects when doing your sums and where you are in your life at the moment to make that decision.
Simphiwe Madikizela is head of projects at FNB Housing Finance