A First-Time Buyer's Guide: Eight Things You Need to Know Before Getting those Keys
Category Buying Advice
Buying your first home is an exciting milestone, but it can also be overwhelming. From navigating bond approvals to understanding hidden costs, there's a lot to consider. At FMS Sales and Leasing, we believe that an informed buyer is an empowered one.
Whether you're dreaming of a trendy city apartment or a suburban family home, here's everything you need to know before taking the plunge into homeownership.
1. Get Your Finances in Order
Can you add here that there different types of bonds, fixed and variable interest rate bonds.
Before you start browsing listings, it's essential to take a closer look at your finances. Lenders will assess your credit score, debt-to-income ratio, and savings before granting a home loan.
To improve your chances of securing a mortgage in South Africa, start by checking your credit score. There are several free websites you can use for this including https://www.mycreditcheck.co.za/ and https://www.mycreditcheck.co.za.
A score of 600 or higher increases the likelihood of approval, and a higher score may also help you secure a lower interest rate. Ways to increase your credit score: https://www.fmssalesandleasing.co.za/news/how-to-improve-credit-score/
Next, focus on saving for a deposit. Most banks require a minimum deposit of 10% of the property's price, but contributing a larger deposit can help reduce your loan repayments.
It's also important to understand the different types of bonds available. In South Africa, you can choose between a fixed interest rate bond, where the interest rate remains unchanged for a set period, or a variable interest rate bond, where the rate fluctuates based on market conditions. A fixed-rate bond provides stability, while a variable-rate bond could be more affordable when interest rates are low.
Read more here: https://www.fmssalesandleasing.co.za/news/fixed-vs-variable-interest-rate-bonds/
Finally, calculate your affordability before applying for a home loan. As a general rule, your monthly loan repayment should not exceed 30% of your gross income. Again, there are several free home loan affordability calculators you can use to check how much disposable income you will have left after paying your bond payment and bills.
Affordability calculators to try:
https://www.sahomeloans.com/calculator/home-loan-affordability-payment-calculator https://www.betterbond.co.za/affordability/
2. Understand the True Cost of Buying a Home
Many first-time buyers only focus on the purchase price, but additional costs can add up quickly. It's important to budget for these key expenses.
Transfer duty is one of the first costs to consider. In South Africa, properties priced under R1.1 million are exempt from transfer duty, but if your home is more expensive, you will need to factor in this tax.
Another significant expense is bond registration and legal fees. You can expect to pay approximately 3% to 5% of your home's value on legal costs, including conveyancing fees.
Homeowners' insurance is also essential, as most banks require this before approving a home loan. Don't forget about municipal rates and levies either. These ongoing costs vary depending on the location and type of property you purchase.
Once you've moved in, there are initial expenses to consider such as moving costs and utility deposits, furnishing and minor repairs and monthly bond repayments and municipal rates.
Having an emergency fund will help you manage unexpected costs and settle into your new home stress-free.
3. Get Pre-Approved for a Home Loan
Having a home loan pre-approval gives you a clear idea of how much you can afford and shows sellers that you're a serious buyer. It also speeds up the process once you find your ideal home.
To get pre-approved, you'll need:
- A copy of your ID
- Proof of income (latest payslips and bank statements)
- Proof of employment or business ownership (if self-employed)
- A breakdown of your expenses
Working with a bond originator or broker can help you shop around for the best interest rates from multiple banks at no extra cost.
4. Choose the Right Location
The old real estate saying location, location, location still holds true. Your home's location affects its future value and your quality of life. Consider things like proximity to work, other family living nearby, schools, and local amenities like shops and hospitals. A home located near a main highway or close to a train station can be a gamechanger for those commuting to and from work.
Knowing the level of crime in the area is also important. You can access crime statistics for any neighbourhood in Cape Town using free online resources like CityProtect (formerly CrimeReports), NeighborhoodScout, and SpotCrime. Alternatively consult the local police reports or community safety websites. It is also worth spending time in the neighbourhood at different times of the day to get a feel for the area and its community.
Even if this is your dream home, consider how its value will hold up over time. Look for areas with growing demand, good schools, and future developments that may increase property prices. Buying in a high-growth area can offer excellent returns if you decide to sell later.
Speaking to neighbours will also help ascertain whether there are any planned infrastructure developments that may impact property values in the future.
Read more on how to choose the right location: https://www.fmssalesandleasing.co.za/news/how-to-choose-the-best-house-location/
5. Don't Skip the Home Inspection
While many buyers fall in love with a home's aesthetics, it's crucial to check its structural integrity. Before approving a home loan, banks review compliance certificates to ensure the property meets all necessary safety standards and regulatory requirements.However, these certificates only confirm compliance with basic safety standards and do not cover all potential defects in the property.
Arranging an additional inspection before signing an offer to purchase will ensure that a thorough check of key areas like the roof, plumbing, and electrical systems is complete. Pay extra attention to, and query any dampness, mould, or cracks in the walls.
6. Know the Difference Between Freehold and Sectional Title Properties
In South Africa, homes generally fall under freehold or sectional title ownership
Freehold means you own the house and the land it's built on and are responsible for all maintenance and rates. Sectional Title homes on the other hand are more common in apartments and estates, where you own your unit but pay levies for shared property maintenance.
Understanding the pros and cons of each type will help you make a well-informed decision.
7. Understand Your Offer to Purchase
An Offer to Purchase (OTP) is a legally binding contract between you and the seller. It outlines several key things, including;
- The agreed purchase price
- Conditions (e.g., subject to bond approval or property inspection)
- Transfer timelines
Before signing, read the fine print carefully and consult a property lawyer if needed.
8. Work with a Trusted Real Estate Agent
Navigating the property market alone can be daunting. A reliable real estate agent can help you find the right property, negotiate the best deal, and guide you through the legal processes.
At FMS Sales and Leasing, we're here to make your home-buying journey as smooth as possible. Whether you're looking for your first home or an investment property, our team is ready to assist every step of the way.
Contact the team today for expert advice and the latest property listings.
Let's find the perfect home for you!
Author: Zeenat Hassan