The real cost of financing a home

Cape Town – First-time home buyers often make the mistake of thinking that the cost of property is limited to the instalments on a bond.

First-time home buyers need to plan and make sure they are prepared for unforeseen costs associated with buying a property, said Ian Lamprecht, manager of home loans internal channels at Standard Bank. He was one of the speakers at the Property Buyer Show held in Cape Town this weekend.

He shared some of the cost considerations first-time property buyers need to make. Among these include the transfer costs of a property and rates and taxes which are an addition to monthly installments for a bond.

“The last thing you want when you move into a property is to be faced with a scenario of having a bill, but don’t have the funds to cover it,” he explained. “Before you make a decision, consider how it could hurt your wallet.”

First-time property buyers might not be aware of the additional costs associated of making their property more “liveable”, said Lamprecht. This could include security features like burglar bars, furniture and other fittings. “Making provisions for things like curtains are things we don’t consider,” he said. “That could be the difference between a place being comfortable or uncomfortable.”

Other cost considerations could be a once-off connection fee for water and or electricity.

Depending on the property you buy costs will be different. For example, when buying in a development, most costs are included, as opposed to a free-standing property.

Another example when buying a sectional title, costs like maintenance and security may not be included and if something should happen and a decision is made at the annual general meeting to implement a levy, you will have to set aside money for that.

Another cost to consider is insurance. With a free-standing property financial institutions need to make sure you have insurance, because until you pay off the loan the asset belongs to the bank, he explained. The insurance is needed to protect the asset.

You may also need life insurance or life cover in the case of your death to make sure that the property is paid off.

Lephoi Mokgatle, head of home loans digital at Nedbank, who was also a speaker at the show, said that there are also upfront costs associated with buying a property. This includes a bank initiation fee, which is a flat rate across banks which is R6 000. This is payable before the bond is registered.

Another fee is the attorney registration fee. Multiple attorneys can be involved and separate fees are charged for the separate skills required, she explained.

Keeping a hand on your property

Buyers should also consider a maintenance cost, said Lamprecht. “You could move into a place and realise it needs serious work, like a coat of paint or holes to fill.”

“It is very important to keep a hand on your property,” said Lamprecht. “Consider maintenance because something minor could be serious down the line,” he explained.

Some things to maintain include the property’s electrical situation. To get an electrical certificate, or even an electrical fence certificate, you may need to pay for maintenance to ensure everything meets the code or guidelines set by the municipality. That could require an additional cost of getting an electrician in to do the work.

Financing your home

Lamprecht explained that all banks offer home loans. Before approaching the bank, consider your credit profile and the outstanding accounts you may have to settle.

Banks will look at your credit profile and your ability to settle accounts. It will influence the value of your loan and the borrowing rate.

With the implementation of the national credit act in 2008, banks consider your income and expenses, and the surplus that remains indicates your ability to pay off a loan, he explained.

“Many people think the big job is to go to the bank and apply for a loan,” said Lamprecht. However, the real work is to determine if you have the reserves built up to pay off the loan. “Even before you come to a bank you must know what you can actually pay,” he said.

Government subsidy

The department of human settlements also provides a subsidy for first-time home buyers known as the Finance Linked Individual Subsidy Programme. The subsidy is a once-off down payment to households which have secured finance, or a home loan to acquire ownership of a property, explained Daniel Pienaar of the Western Cape department of human settlements. The subsidy aims to reduce the monthly installment in the home loan.

To qualify for the subsidy, the buyer needs to secure a mortgage from a bank or financial institution, Pienaar explained.

Other requirements are that the buyer earns between R3 501 to R15 000. The buyer needs to be a South African citizen or permanent resident. The buyer should not have qualified for a government housing subsidy before or owned a fixed residential property before.

The buyer should be “competent to contract” - this means they should be over the age of 18, or legally married, or legally divorced and of a sound mind. The buyer can also be married or cohabiting, or be single with financial dependents.

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