Budgeting for your first home – what you need to know
Picture walking into a R2.3m townhouse and feeling like you are at home. But, then someone reminds you of the ‘hidden’ costs inherent in property purchases.
Vera Nagtegaal, Executive Head at Hippo.co.za, says that data from the FNB Home Loans’ affordability index shows how financially trying the current economic environment is becoming. This is compounded by the steep increases in municipality and utility costs across the country.
Nagtegaal explains the cost of electricity has increased by 86.99% since the start of 2008 and is the biggest culprit of the disposable income index. Only 12.4% of homeowners are under the age of 30 in South Africa. This is due to the weak economy and the slower pace at which young people are entering the job market.
Number crunching made easy
Nagtegaal provides key advice for potential buyers:
“There’s no guarantee that a reputable bank will grant you a 100% bond, so you’ll need to do your research about the deposit required to make the bond affordable, as well as calculate what the transfer fees might be,” she says.
With information at our fingertips, thorough research online can help potential buyers understand bond costs. “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, bond repayment terms and attorney costs,” she explains.
The platform also allows you to compare bank options based on the minimum loan that you qualify for. For example, on a property of R1-million, with a deposit of R200 000, paying 10% interest over 20 years, your monthly payment would be around R7 720, with total once-off costs amounting to around:
• Bond registration costs R25 607;
• Property transfer costs R27 760; and
• Bond initiation fee of R5 985
Banks will charge a bond initiation fee for processing home loan applications. This is payable on a once-off basis upon the registration of a bond and will most likely be added to the home loan account. While some banks work on a base fee plus a percentage of the loan amount, others charge a flat rate.
Nagtegaal points out that it is important to look at varying insurance companies on offer.
“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
Some banks require prospective buyers to take out life insurance when purchasing a home of up to R1-million. Nagtegaal adds 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,” she advises.
Homeowners insurance is an important aspect when budgeting for a property. “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,” she explains.
It is important to specify expensive items of furniture and electronics that will otherwise be difficult to replace. If one has a similar policy in place at their rented property, be sure to also change the address on the insurance documents after moving into a new property.
“Levies, municipal rates and taxes, electricity and an alarm system for your home, these also add up. Overall, owning your own home is arguably one of the biggest achievements of adult life,” says Nagtegaal.
She says prospective homeowners should do their homework to make sure they are not left out of pocket due to unforeseen expenses.