Home loans and property ownership: key insights for every buyer

The best advice for anyone looking to better understand property ownership is that if they can qualify for a loan from the bank to buy a property, they have the opportunity to build long-term wealth.

A home loan allows you to pay off the property over time, says Stefan Botha, Director of Rainmaker Marketing. He said in the long run, they will then own an asset that can either appreciate in value or at least retain its worth.

“It’s also vitally important to understand the role of a good credit record in this process. Your ability to secure financing depends heavily on how well you manage your credit. That means consistently keeping up with payments on accounts like credit cards, clothing accounts or any other debt.

"Either aim to minimise those balances or ensure that you’re always paying them on time. Doing so puts you in the best possible position when the time comes to apply for a home loan,” Botha said. 

He said another key point is understanding the concept of leveraging, which is using other people’s money (typically, the bank’s money) to invest in an asset like property. He said this allows one to purchase something of significant value, even if they do not have the full amount in cash.

“By making manageable monthly repayments, you’re not just paying off a loan - you’re also locking in the value of the property and benefitting from potential appreciation over time.” 

According to Botha, if one can manage their repayments, buy within their means and control their monthly spending, they will be well positioned to benefit from property ownership.

He added that this applies whether they are buying a primary residence or purchasing an investment property to generate long-term rental income.

Remax Southern Africa recently urged first-time buyers to avoid common pitfalls that can cost them thousands of rands or delay their path to homeownership.

The real estate company said buying one’s first home is an exciting milestone, but it also comes with a steep learning curve, especially when it comes to navigating home loans. 

It encouraged first-time buyers to equip themselves with the right knowledge and steer clear of costly mistakes that could set them back financially.

It listed these five most common home loan mistakes and how first-time buyers can steer clear of them:

1. Not getting pre-approved before house hunting

Many buyers begin their property search before understanding what they can afford. Without pre-approval, one risks falling in love with a home that's out of their budget or missing out on the ideal property while scrambling for paperwork.

Tip: Connect with a bond originator or bank to obtain pre-approval. This gives you a clearer price range and strengthens the offer.

 2. Ignoring the true cost of homeownership

A common mistake is focusing solely on the home loan instalment while forgetting about additional upfront costs like transfer duties and bond registration fees, as well as the ongoing monthly expenses like rates and taxes, levies, maintenance and insurance costs.

Tip: Create a realistic monthly budget that includes all expenses related to homeownership, not just the bond repayment.

3. Choosing the wrong home loan term

Selecting a 30-year loan to reduce monthly repayments might seem attractive, but it often leads to significantly higher interest paid over time.

Tip: Where financially feasible, consider a shorter-term loan (20 or 25 years) or commit to paying extra every month to reduce interest and shorten the loan term.

4. Not comparing lenders or interest rates

Many first-time buyers settle for the first loan offer they receive. However, failing to shop around can mean missing out on lower interest rates or better loan conditions.

Tip: Work with a reputable bond originator who can submit applications to multiple banks and help you secure the most competitive rate.

5. Making major financial changes before transfer

Taking on new debt, changing jobs or making large purchases before your bond is registered can affect your creditworthiness and even derail your loan approval.

Tip: Avoid big financial decisions from the time you apply for your home loan until the property is officially transferred into your name.

“Buying your first home can be incredibly exciting, but it is important to take the time to fully understand what you are signing up for if you’re relying on home finance.

"Avoiding these common home loan mistakes can be the difference between a smooth purchase and a financial setback,” says Adrian Goslett, Regional Director and CEO of Remax of Southern Africa.

Giving tips to those buying a property, Mfundo Mabaso-Product Head, FNB Home and Structured Lending, said:

1. Know your credit score: A good credit score improves your chances of getting a favourable home loan interest rate. Check your credit report and resolve any issues before applying.

2. Get pre-approved for a bond: This gives you a clear idea of your budget and shows sellers you're a serious buyer.

3. Understand all costs: Beyond the purchase price, budget for transfer duties, bond registration fees, legal fees, municipal rates and levies. 

4. Choose the right location: Look for areas with good infrastructure, schools, transport and future development potential. Consider resale value and rental demand.

5. Inspect the property thoroughly: Check for structural issues, damp, plumbing and electrical systems. Consider hiring a professional inspector.

6. Understand the terms of the Offer to Purchase: Read all clauses carefully, especially those related to suspensive conditions and penalties.

Giving tips for property investment, Mabaso said:

1. Define your investment goal: Are you looking for rental income, capital appreciation, or both? Do a rental yield analysis. Calculate gross and net rental yields to assess profitability. Factor in vacancy rates, maintenance, and management fees.

2. Diversify your portfolio: Don’t put all your capital into one property or area. Consider different types (residential, student housing, commercial).

3. Leverage smartly: Use bank financing to grow your portfolio, but ensure your debt-to-income ratio remains healthy.

4. Stay tax compliant: Understand how rental income is taxed and what expenses are deductible. Consider setting up a property investment company or trust for tax efficiency.

5. Keep an emergency fund: Always have reserves for unexpected repairs, vacancies or interest rate hikes.

6. Work with professionals: Partner with a real estate agent, property manager and financial advisor who understands your goals.

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