First-timers home buyers face a myriad of hidden costs
IT CAN be devastating when one member of a married couple dies and his or her partner is forced to sell the home. Freepik IT CAN be devastating when one member of a married couple dies and his or her partner is forced to sell the home. Freepik
South Africa's weak economy, coupled with the slow pace at which young people are entering the job market, is contributing to the reason that only a small percentage of homeowners are under the age of 30.
This is according to Vera Nagtegaal, executive head at Hippo.co. za.
Nagtegaal advises first-time property buyers on the hidden costs inherent in property purchases.
Nagtegaal said that data from the FNB Home Loans’ affordability index showed how financially trying the current economic environment is becoming, not forgetting steep increases in municipality and utility costs.
According to Nagtegaal, the electricity affordability component is the biggest culprit of the disposable income index, having escalated by a staggering 86.99percent since the beginning of 2008.
She added that the weak economy and resultant slower pace at which young people are entering the job market are contributing to the reason why only 12.4percent of homeowners are under the age of 30.
“There's no guarantee that a reputable bank will grant you a 100percent bond, so you'll need to do your research about how to make the bond affordable, as well as calculate what the transfer fees might be.
"It doesn't have to be a complicated exercise. Online calculators, such as the one offered on Hippo.co.za, could help you calculate bond affordability, bind repayment terms and attorney costs,” said Nagtegaal. She said the platform allows one to compare bank options based on the minimum loan that one can qualify for.
For example, on a property of R1 million, with a deposit of R200 000, paying 10 percent interest over 20 years, your monthly payment would be around R7720, with total once-off costs amounting to bond registration costs around R25607, property transfer costs of R27760, and bond initiation fee of R5985.
Nagtegaal said a bank would charge a bond initiation fee for processing a client's home loan application, payable on a once-off basis on registering off your bond and will most probably be added to a home loan account.
She said that while some banks work on a base fee plus a percentage of the loan amount, others charge a flat rate. “With the excitement of moving into your new home, don't forget to look into and compare the different types and brands of insurance on the market, said Nagtegaal. She said some banks required prospective buyers to take out life insurance when buying a home of up to R1 million.
Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, advised potential homeowners to determine an amount that they would like to put aside each month that will help them to afford the various expenses incurred when buying a home.
Goslett said this needs to be an informed calculation rather than a shot in the dark.
“Do your research and find out what you can afford. BetterBond has a great online affordability calculator that can provide this information to you free of charge.
"Beyond this, you should also chat to an estate agent to find out what you can expect to pay on rates on a property in this price bracket. This amount then needs to be factored into your monthly budget,” he said. Homeowners should also make room in their budget for unexpected emergency expenses.
“One of the things that stress new homeowners out the most is not having funds available for when things break or need repairing. If you are unable to make room in your budget for these sorts of expenses, make sure you’ve got some form of credit or overdraft facility set up to use in case of emergencies,” said Goslett.
Nagtegaal said that it can be devastating when one member of a married couple dies and his or her partner is forced to sell the home because they are not able to afford the monthly bond payments.
“Your bond originator may have a partnership with a reputable life insurance company that can offer clients competitive rates. Your bank will specify that you must have homeowners’ insurance in place to cover any potential structural damage to your property, which can be included in your monthly bond payments.
"While it does vary in amount according to the value of your home, you should also investigate insurance to cover the contents of your home,” explained Nagtegaal.
"It is important to specify expensive items of furniture and electronics that will otherwise be difficult to replace.
“If you have a similar policy in place at your rented property, be sure to also change the address on your insurance documents when you move into your new home," she said.