Buying a home is a big step, not just from a financial perspective, but more importantly from your day-today life perspective as well, and we put together some of the factors to consider when buying a new home.
What can you afford and get financing for?
For most South Africans the only way to buy property is through financing, this through specialised Bond companies or banks. Therefore prior to starting your search its important to look at the affordability factor and to get an insight on what the maximum is that you may be able to afford.
Be careful not to consider the maximum as your target amount, you should take into consideration many other factors, and therefore aim to be below the maximum that you calculate as your affordability barrier, as an example a small change in interest fees can have a dramatic impact on your monthly repayments, if the interest rate goes down then thats great, yet if it goes up it could place significant pressure on your pocket. We indicate the effect of different interest rates for you in an Excel sheet we created and that you can download, the sheet contains a number of tools as referenced in this blog and can be found at the end bottom of the page.
Here is what you need to consider when looking at the finance and budgeting factors.
Bank Affordability Factor: South African Banks have to adhere to the National Credit Act, which places a value restriction on loan values allowed and granted by banks, typically this is about 30% of your gross monthly income before tax and expenses have been deducted, if you are a couple then your joint income will be taken into consideration. The bank will also calculate your ability to afford and repay the loan, this through looking at your net income (the money in your pocket after all deductions) less your monthly expenses, to arrive at a calculation of your disposable income, and based on this will calculate the loan amount you may qualify for. We placed a sheet at end of this Blog that you can download to calculate this value as a guide.
Bond payments: Calculate the monthly bond payment based on the purchase price and interest rate, and consider how this fits into your monthly budget, we included a calculator for you in our sheet at the end of this article that you can use to calculate your monthly repayments at different exchange rates. Its important to understand that a slight change in Interest rate will impact your monthly repayments, so consider this factor carefully. Also most banks have different rates for different risk profile customers, thus if you have a good credit record, amongst other factors, you can negotiate your starting interest rate and you are strongly advised to do exactly this and to shop around for the best interest rate.
Other fees that are part of buying a home
Besides the bond and financing fees as mentioned above there are also some other fees that would become due and payable during the process, and its important that you are aware of these, allowing you to plan your cashflow and not be caught off guard when these fees become due.
First its beneficial to understand the process of buying a home, which in general flow as follows:
You engage a real estate agent to find a home or to enquire about a home you may have sen that is for sale.
You look at the house and assuming that you are happy you sign an offer to purchase document, which is then also signed by seller as acceptance of the offer, this is a crucial step and allows you to start process of applying for home loan from the bank.
The bank reviews the application, performs all their affordability and credit checks, and if all goes well the loan is approved and transfer process can start.
The seller will then appoint a transferring attorney, which will then start the transfer process on behalf of the process, it is important to know that the buyer will be responsible for the transfer fees and we cover this later in this article.
There will then be a process where the attorneys will have a number of documents to be signed by buyer and seller and during this process the attorneys will request a range of documents from you, mostly to follow SARS and FICA processes, you will then sign the documents as requested by attorneys.
Transfer fees are then paid to the attorneys, this is called a conveyancing fee, which includes admin costs, these fees are paid by the buyer, the higher the value of the property the higher the fee that would be payable, its covered in more detail later in this section.
Transfer duties are paid to SARS, the amount due is based on the value of the property.
The transferring attorney then registers the documents at the deed office, this includes cancelling the old bond if applicable and registering the new bond.
The deed is then registered and following a period of about two weeks for review purposes the transaction is registered and the buyer becomes the owner of the property.
Transfer/Conveyancing Fees
As referenced above the seller appoints a transferring attorney, this is to register the property from seller into the buyers name, and these fees would have to be paid in full before the home can be registered at the deeds office. To slightly increase the confusion that surfaces during transactions the bank will also appoint a conveyancing attorney if the transaction was financed via bond with bank, and buyer would also be invoiced for the banks attorney, this attorney is normally referred to as the "bond registration attorney". The registration of the deed and the bond happens at the same time.
These transfer/conveyancing fees are done on a sliding scale, and although there are recommended fees, these conveyancing fees are negotiable and when making the offer to purchase you may want to check with seller, who appoints the transfer attorney, as to what the fees are and possibly get a quote for such fees. At the time of this article the typical conveyancing fees on a R1m home was at between R19,840 and R23,667, you can also find on most bond and bank websites a calculator that calculates these indicative fees for you.
Transfer Duties calculation
Transfer duties are payable to SARS. At the time of this article SARS referenced the transfer duties payable as follows:
Value of Property | Transfer Duty |
Up to 1 Million | No transfer duty |
R1,000,001 to R1,375,000 | 3% of the value above R1,000,000 |
R1,375,001 to R1,925,000 | R11,250 +6% of value above R1,375,000 |
R1,925,001 to R2,475,000 | R44,250 + 8% of the value above R1,925,000 |
R2,475,001 to R11,000,000 | R88,250 + 11% of the value above R2,475,000 |
R11,000,001 and above | R1,026,000 + 13% of the value above R11,000,000 |
Beyond the financing fees and the relevant duties what other ongoing cost should be considered?
When doing your budget and calculating your affordability barriers, you would also have to consider other costs that will become part of your calculation, these are as follows:
Homeowner's insurance: Consider the cost of homeowner's insurance, this includes your actual structure, especially since the heydays of having life insurance covering your bond automatically being included in your financing agreement not being the case, so carefully look at the short terms and life insurance factors when buying a home. Some areas and home configurations, such as being next to an open veld, or not having surrounding walls can increase your short term insurance costs.
Utilities: Research the cost of utilities, such as electricity, gas, water, and internet, and factor this into your monthly expenses.
Homeowner association (HOA) fees: If the property is part of a homeowner association, research the HOA fees and any associated rules and regulations.
Maintenance Costs: Owning a home requires maintaining your home, and having funds available for regular maintenance as well as unforeseen breakages, a rough rule of thumb is to have at least 1% of the home value budgeted per year up to 4% on average, thus a R1m home would require between R10k to R40k per year for maintenance purposes.
The other costs not to forget
Besides the ongoing budget indicators above, you will also need to consider some other costs when buying a home, some of these are:
Utility Activations: Changing ownership of a home also means that you would have to change the utility accounts at the local councils, and if your conveyancers did a good job this would be an administrative action requiring you to go down to your friendly and efficient local council :) to activate the utilities on your name.
Moving costs: Moving home can be a frustrating experience and we forget how much stuff we have in many instances, and you would have to budget to have a moving company move your stuff, if you are a DIY person you may have to rent a trailer, bakkie or truck, keeping in mind that renting a trailer normally requires returning that trailer as well as "one way" rentals are difficult in the trailer renting industry.
Other Costs: Carefully consider other costs that may come your way, if you are moving to a new town you may have to buy new school uniforms, creches may require a deposit paid upfront, cleaning costs of the home your moving to as well as the home you moving from, painting costs to get the colour scheme to your liking, new curtains as your old curtains may not be the same size, and you may have to stay in guesthouses and hotels if you are moving to a new town while house hunting, these are some examples that you may need to think of.
You are financed, you budgeted and you looked after all the costs, now what?
The first step is to start putting together a detailed picture of the home you want, and if you have done all the homework you should have a very good idea of your target price range, which will be of great help as you start looking at homes, either through an agent or local media channels.
Our suggestion is that you start building a written list of all your requirements, ranging from the type of house you want, the size, the garden requirements, covering all your bases in order to aid your search as well as saving you time when requesting and briefing your estate agent to find you your ideal home.
Here are some of the points that you should consider when starting your search and your list of requirements, again we stress the importance of having a written list of your requirements, the more time you spend on fine tuning this list the more effective you will be in your search and finding your ideal home, now lets get to the list:
Location: here is a list of points to ponder and place on your sheet
Proximity to amenities: Consider the distance to schools, shopping centres, restaurants, public transportation, and entertainment options. This will affect your daily life and can impact property value.
Neighborhood: Research the surrounding neighbourhood, including the crime rate, quality of schools, and local amenities. Walk or drive around the neighbourhood to get a feel for the area and speak to neighbours if possible.
Zoning and land use: Research the local zoning and land use regulations to ensure the property is in compliance and to understand any potential restrictions or future development plans in the area.
Traffic patterns: Observe the traffic patterns in the area during different times of day to get a sense of the level of congestion and noise.
Future development plans: Research any future plans for development in the area, such as new roads, shopping centres, or housing developments, to understand their potential impact on the area and property values.
Resale value: Consider the potential resale value of the property and research recent home sales in the area to understand market trends and property values.
Accessibility: Consider the ease of access to the property, including proximity to major roads and highways.
Family and Social Factors: How often would family visit, children especially once they are not at home anymore, is the roads safe from their home to your new home, are their doctors close-by if you have health issues, these are some of the factors to consider.
Home type and design: here is a list to ponder and place on your sheet,
Structure: Decide the type of home you are looking for, such as a single-family home, townhouse, or complex.
Size and layout: Consider the number of bedrooms and bathrooms, as well as the overall size and layout of the home. Do not forget your kitchen requirements such as type of stove (gas, electric, eye level oven) built in cupboards, need for washing machine and dishwasher plumbing.
Storage space requirements: Often overlooked this could be a real comfort when you have a lot of stuff to store, or when hubby has a lot of tools and equipment he likes to keep organised.
Work from home: If you work from home your list may include space for a small office, reliable fibre internet connectivity, access door for your clients that may visit.
for things like your tools
Plot/Yard size and garden: Consider the size of the plot and whether it meets your needs for outdoor living, gardening, or entertaining, including the garden, the maintenance of the garden and whether it meets your green fingers. Do you want a pool, what size should it be, should their be an outdoor braai
Future plans: Consider any future plans, such as starting a family, adding a room, or making home improvements.
Parking/Garage Requirements: Consider the requirement and space for parking for your and visitor vehicles.
Infrastructure: With Eskom issues and threatening water issues you may want to jot down the requirements for solar, generators, JoJo tanks, boreholes and the likes in your requirements.
Tip: Look at ads in the media and make notes of things that you see and that remind you of factors that you require on your list, its a great "brain-toggler" and will assist you to jot down points especially within your price range reference.
Things to consider when going looking at specific homes with your agent
A critical factor in todays modern world is to determine if the home you are buying has tenants in the home that is renting, and what the status of such lease is, you need to make it absolutely clear in your offer to purchase that your offer to purchase is only valid should these tenants vacate the premises in accordance with the lease, or you should have clauses in agreements that seller carries all costs if tenants cannot be evicted after lease expiration, as well as clause that you as buyer can claim occupational rent from seller in such a case.
Keeping in mind that any lease agreement will supersede the buying agreement, the principle is known as "Huur gaat voor koop", in other words if a lease is in place then you as new owner would have to adhere to that lease agreement and you may not just decide to cancel their lease, there are cases on record of buyers getting the nightmare of not being able to evict tenants and having to go through a long , lengthy, frustrating, legal and expensive process to have these tenants evicted.
Age and Condition: Evaluate the age and condition of the home, including any necessary repairs or renovations. Especially if older home, this includes roof, plumbing
Neighbour Factors: Check for things that may disrupt your dream home and life completely, thing that may seem small issues can lead to great frustration, tree overhangs from neighbours can cause immense arguments, privacy factors such as low walls to neighbour which neighbour refuses to allow raising of such walls and do not assume that you could raise such walls when the home is yours, there are regulations that may hamper such assumptions and your new neighbour may have objections
Neighborhood: Research the neighbourhood, including the crime rate, school district, and community amenities. Its a good sign if you see children in the street, people jogging and walking in the evenings.
Homeowner's association: If applicable, research the homeowner's association and its rules and regulations, especially related to keeping of pets, working from home, improvements you may want to make, common areas, a good reference may be to look at the minutes from previous meetings, you will hate to buy a home and discover something that really messes up your day.
View: Evaluate the view from the property, including any potential obstructions or distractions.
Utilities and Infrastructure: Research the cost and availability of utilities, including water, gas, electricity, and internet. Open the taps when you isit home, feel if water is warm from faucets, check water pressure, check shower pressure, flush the toilet, You need to look at the home design and look at the home infrastructure, its more important than doing checks on 2nd hand cars as the investment in your home is your investment for an extended period and is your place to go to, its your castle and your lifestyle, be vigilant
Zoning and building codes: Research the zoning and building codes for the area to ensure the property meets your needs and is compliant with local regulations, including checking the structures against approved plans at council, include these in your purchase agreements as well with specific recourse clauses if found to be non compliant or not matching approvals.
Resources
Conveyancing Attorneys in Potchefstroom: Click Here
View Available Properties in Potchefstroom for Sale on The Go-To Guy: Click Here
View Available Properties to Rent in Potchefstroom on The Go-To Guy: Click Here
Get in Contact with Estate Agents in Potchefstroom: Click Here
Creches, Schools and Tutoring in Potchefstroom: Click Here
Guesthouses, Hotels and Self Catering: Click Here
Downloads
Download our Bond and Affordability Calculator: Below
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