Bank Better, Live Better
first steps to buying a home31/01/2019
Buying your own home is a long-term investment and can bevery exciting. Whether you are looking to buy a piece of land to build on, a flat or house to live in, investing in property can be expensive. So, you need to be sure you can afford the monthly repayment and are aware of possible additional costs.
If you are looking to buy a plot of land, do some research and find out what the future development plans are for the area. Undeveloped areas can be more affordable and will likely increase in value and become sought after once building starts. If you are looking to buy a home, consider buying something smaller or less luxurious in a more affordable neighbourhood. That way you’ll have a lower monthly repayment. You can also make additional payments and pay the debt off quicker and buy something bigger or in a better neighbourhood.
Before you go house hunting, it’s important to establish what you can afford.
Who will be paying for the property?
- Just me
- My partner/spouse and I
- Other family members and I
Tip: The general rule of thumb is that everyone living on the property who earns a salary, should contribute to your monthly home loan instalment. Alternatively, ask them to help cover other costs, such as paying towards water and electricity. If you’ll be paying for the property on your own, consider renting out a room or part of the house to cover a portion of your monthly home loan repayment.
In whose name will the property be registered?
- Only mine
- Mine and my partner’s/spouse’s
- Mine and another family member’s
Tip: Work out the legal aspects of title deed ownership carefully. If you and your partner part ways down the line, you may have to sell your home and divide the money, so think about it carefully and decide how to address this.
It’s also a good idea to draw up a will leaving the property to the person(s) you want to inherit it. If you don’t leave a valid will, your family could lose the property. It’s also a good idea to get insurance that covers the outstanding debt on your property if something happens to you, or in the event of your death.
What is your monthly budget to cover all home-related expenses, including the home loan instalment, municipal rates and taxes, etc.?
- R2 500 or less
- R2 500 – R5 000
- R5 000 – R10 000
- R10 000 – R15 000
- R15 000 – R20 000
- R20 000 +
Tip: Your home loan repayment should generally be no more than a third of your net income. Keep in mind that this budget should be the amount you can afford to pay in addition to covering your monthly living costs.
Have you saved money towards a deposit?
Tip: Your deposit should generally be around 10% – 20% of the property cost. The larger your initial deposit the better, as this will reduce how much you end up paying for your property over the long term (you’ll be paying less interest). If you haven’t already, consider opening a savings plan towards your deposit.
Are you aware of additional costs, such as lawyers’ and agents’ fees, transfer fees, home insurance and loan deposit fees, that must be covered when buying property?
Click here to read more about what additional costs you can expect to pay.
Will you be applying for a home loan?
If yes, click here for more information about your options.
Do you understand how compound interest works?
Tip: You will spend the first few years paying the interest on your home loan before you start paying off the initial loan amount. Compound interest is the interest that you pay on interest. Most home loans are repaid over a period of 20 – 30 years, which affects how much interest you’ll pay and how much you’ll end up paying for your property overall. Read this article to see how you can save money over the long term by paying a higher monthly instalment.
Action your big goals
Setting realistic annual goals is a great way to help build the life and career you want. The more practical and informed your approach, the more likely you are to achieve your dreams. We’d like to help you reach at least one goal this year, so we’ve created a 3-part series of practical information and handy checklists for 4 major financial goals. Whether you want to buy a home or a car, or save for your education or a dream holiday, we’ve got you covered.
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