Budgeting to buy a home
TIPS AND COSTS: HIDDEN EXPENSES
Planning for buying a new home begins two years before making an offer to purchase.
Agood budget plan begins one or two years before you make an offer.
Here are four tips to become a homeowner:
Build strong credit and raise your credit score. Pay off past-due bills, pay every bill on time and reduce your balances to less than 30% of the credit limit on every account. Reduce debt. Practice making house payments. Watch debt-to-income ratios. Important in loan approval, it compares minimum monthly payments on all debt to gross monthly income. If your debt-toincome ratio is over 50%, pay off your debt before even thinking of buying a home.
What to budget for:
Hollard lists some major expenses: 1. Deposit
Banks typically require a 10% deposit on the purchase price, or as much as 30% depending on your credit rating. It’s paid in cash, upfront and once-off to the transferring attorneys.
2. Initiation fee
This is charged by the bank at the start of the loan (if you take out a bond). It can be paid upfront and as a once-off fee, or capitalised to your loan amount.
3. Transfer duty
It’s a government tax; no property can be transferred to a new owner if it’s not paid. The higher the property’s value, the higher the percentage of duty payable. Property transactions below R900 000 are exempt.
4. Transfer costs
This is the professional fee the conveyancing or transferring attorney charges to register your ownership of the property with the Deeds Office. It’s paid before registration.
5. Bond registration costs
For the bank to ensure it has some security, it’ll register a mortgage bond that confers certain rights on the bank. It’s registered at the same time as the transfer of the property by the bond registration attorney, who will also charge a professional fee for registering the bond, which you pay.
6. Occupational rent
Payable only if you take occupation of the property before its transfer into your name has been registered.
7. Moving costs
Shop around for good rates and service. Typically month-end is more expensive.
8. Home warranty
This protects the buyer against the financial ramifications of any hidden defects that may emerge in the property for two years after taking transfer. The cost of the warranty is covered by the seller – ask for it in your Offer to Purchase.
9. Homeowners and life insurance
The bank requires homeowners’ insurance and life cover, which must stay in place for as long as you have the bank loan. You can take this insurance through the offering via your bond provider, or your current preferred broker/insurer.
10. Contents insurance
It’s highly recommended you insure the contents of your home.
11. Rates and taxes
Once the transfer is complete, you’ll need to register for rates and taxes, water and electricity services. The municipality will require a deposit, linked to the home’s municipal value.
12. Total cost of ownership
These are ongoing costs such as electricity, water and refuse removal (on your municipal account), garden, cleaning services and maintenance. – Engel & Völkers Southern Africa