You need a ‘big pic­ture’ bud­get for home­own­er­ship

George Herald - Private Property - - Property News -

How much the bank will lend you is not the only thing to con­sider when you're ap­ply­ing for a home loan. As a home buyer, says Rudi Botha, CEO of Bet­ter­bond, South Africa's big­gest bond orig­i­na­tor, you also need to bud­get for the on­go­ing costs of prop­erty own­er­ship, and en­sure that you will be able to af­ford these as well as your monthly bond re­pay­ment.

"For ex­am­ple, once you take oc­cu­pa­tion of the prop­erty, you will be li­able to pay for ser­vices like wa­ter and elec­tric­ity, and once the prop­erty has been trans­ferred into your name, you will also have to pay mu­nic­i­pal rates. Fail­ure to pay these amounts could lead to le­gal ac­tion and even to the prop­erty be­ing sold to clear the debt. So be­fore you com­mit to a prop­erty pur­chase, you should find out what the seller has been pay­ing for mu­nic­i­pal ser­vices and rates for the past year, and build this cost into your monthly bud­get."

In ad­di­tion, he says, you should bud­get a monthly amount to main­tain your home and gar­den if you have one. "Many peo­ple don't know this, but keep­ing the prop­erty in a rea­son­able state of re­pair is ac­tu­ally a con­di­tion of most home loan agree­ments. And in any case, the long-term fi­nan­cial con­se­quences of ne­glect are usu­ally greater than the costs of reg­u­lar main­te­nance."

There can also be sub­stan­tial in­sur­ance costs as­so­ci­ated with home own­er­ship, notes Botha. "Fi­nan­cial in­sti­tu­tions usu­ally in­sist, for ex­am­ple, that the prop­erty it­self is in­sured at re­place­ment value - that is the amount it would cost to re­build should it be de­stroyed by fire, flood or other dis­as­ter. "This is known as home­own­ers' in­sur­ance and most buy­ers just al­low the pre­mium to be deb­ited an­nu­ally to their bond ac­count. How­ever, pay­ing the pre­mium sep­a­rately when it falls due can save thou­sands on the even­tual pur­chase price of a home and buy­ers should also con­sider set­ting aside a monthly amount to­wards this."

Your lender may also in­sist, he says, that you take out life in­sur­ance to cover the bal­ance ow­ing on your bond in the event of death or per­ma­nent dis­abil­ity. This is known as bond in­sur­ance and pre­mi­ums are gen­er­ally payable monthly.

"And fi­nally, it is ad­vis­able as a home owner to have short­term in­sur­ance that cov­ers you for the loss of any of the con­tents of your home due to dis­as­ter or crime. Many peo­ple also elect to pay monthly for the ser­vices of a se­cu­rity com­pany or make a monthly con­tri­bu­tion to a neigh­bour­hood watch pro­gramme." Al­to­gether, these ad­di­tional costs of home­own­er­ship can amount to al­most as much as your monthly bond re­pay­ment, says Botha, and may in fact mean that you have to re­vise your ideas about what sort of prop­erty to buy. "How­ever, as a re­spon­si­ble orig­i­na­tor, we strongly be­lieve in prospec­tive buy­ers ap­ply­ing for loans that they will be able to af­ford without fi­nan­cial strain - and buy­ing a less ex­pen­sive home is cer­tainly a lot less dif­fi­cult than los­ing a more ex­pen­sive one - as well as one's credit rat­ing - for the lack of proper bud­get­ing at the time of pur­chase."

Is­sued by Bet­ter­bond

Keep­ing the prop­erty in a rea­son­able state of re­pair is a con­di­tion of most home loan agree­ments.

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