Earn the freedom to buy your own pad, if you can

2014-07-02 00:00

IF there is one financial goal most people share it is to own their own home.

Home ownership represents freedom — freedom from a slumlord, freedom from parents who want to know where you are at 2 am, and the freedom to chill in front of the TV in just your underwear.

Unfortunately home ownership is not as simple as just signing a purchase agreement — it comes with some serious financial responsibilities and if you are not ready for it, rather than the freedom you seek, you could end up being imprisoned by debt.

Before you leap into buying a home you need to have some idea of what your life plans are. Due to the high transaction costs of buying and selling property you need to hold onto your property for around seven to 10 years before you could sell it for enough to offset the transaction costs.

To give you an idea, if you bought a flat for R800 000 you would pay around R33 000 in acquisition costs. This includes transfer fees and bond registration costs.

When you sell you would pay around R58 000 in costs such as an estate agent fee and electrical certificate. So you would have to sell your property for nearly R100 000 more than you paid for it just to break even.

If you don’t think you will be staying in the same place for a while, then rather continue to rent.

You also need to budget for those monthly homeownership costs including mortgage repayments, property insurance, rates, levies and maintenance.

A good way to find out if you can afford your home is to calculate a home ownership budget. Mortgage originator Ooba has some great online tools to help you work out what you can expect to pay. Visit www.ooba.co.za.

Estate agents should be able to provide a guideline to the levies and rates you may be paying in the area you are considering. Your bank would be able to give you an idea on what the costs of property insurance would be and also life insurance — most banks will want you to have an insurance policy that pays off the mortgage should you die or become disabled.

Also make sure your budget includes money each month for maintenance — ideally around 10% of your mortgage repayments.

Once you know what the costs are, save the difference between what you are currently spending on accommodation and what you will be paying as a homeowner.

This saving will help towards a deposit on your property and it has the added benefit of showing the bank that you can afford the property as you are already living on your new budget.

Other costs to consider:

• You will pay a deposit for municipal rates, water and electricity account for your new home while still paying for the electricity and water in your last month of rental.

• If you use a landline telephone, you can incur costs for transferring your landline or for installing a new landline connection.

• Calculate your moving costs. Depending on how much furniture you own and the distance between the two properties, you may need to use a moving company. It is usually cheaper to book your furniture removal on a weekday in the middle of the month.

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