How can I make good plans to buy my first home?

Dreaming of owning your own space with no landlords? It is a good dream to have and you can help make it a reality with a few practical steps, long before you start hunting for the ideal property.

Work out what you can afford

Before you set out to look for the ideal future home, make sure you know what you can afford to spend on property.

Most people have to take out a home loan to buy a home or property, as they do not have the money required to buy property for cash.

Home loans make property affordable by stretching the loan over 20 years – and sometimes even 30 years.

Home loan providers generally regard repayments that amount to around 30% of your income, or your combined income if you are buying a home with a partner, as affordable.

However, the amount a provider will lend you will be determined by what you can actually afford, as home loan providers are obliged by law to lend you only as much as you can afford to repay.

To assess your ability to afford a loan, they will ask you to provide your monthly income and expenses. Read more: How does a credit providers determine how much credit I can afford? 

To provide this you should have a budget that accurately reflects your income and expenses. Test our Budget Planner

Remember the other ongoing costs

You should also remember that the home loan repayments you will need to make each month are not your only ongoing cost of owning a property.

Your total monthly cost of owning property includes:

• Loan repayments: The monthly cost of repaying your home loan;
  
  
• Rates and taxes or levies: The monthly rates and taxes you will pay on the property if you take full ownership, or the monthly levy you will pay if you buy into a sectional title scheme;
  
  
• Insurance: The monthly premium for the homeowner`s insurance you will need to insure your property against the likes of fire, flooding or storm damage – your home loan provider is likely to insist you have this to protect the loan it grants you;
  
  
• Life insurance: The monthly premium for credit life insurance to cover your repayments should you die, become disabled or retrenched – your home loan provider is also likely to insist that you have this cover (Read more: What is credit life cover?);
  
  
• Maintenance: Some provision for the cost of ongoing maintenance and repairs;
  
  
• Services: Electricity, water and sewage costs. Depending on the municipal area where you buy and which entity supplies electricity and whether it is prepaid or not, some of these costs may be included in your rates bill; and
  
  
• Security costs: Monthly security costs – for an alarm with response - if you will need this.

When you know what all the extra costs are that come with owning property, you can work out how much you can afford in monthly loan repayments.

Based on that amount, you can use a home loan calculator on either a bank or bond originator’s website to determine how much you can spend on buying a property.

You can use the default interest rate provided in the bank and bond originators’ calculators but remember you may actually be granted a higher or lower interest rate depending on how your home loan provider assesses your credit record and ability to repay the loan.

Remember to factor into your affordability calculation any potential increase in interest rates that could increase your bond repayments.  

The additional costs of purchasing a property

When you consider the property you will buy, don’t just look at the purchase price.

Every property purchase incurs additional once-off costs including:

• Transfer duty: a tax paid to the South African Revenue Service - on properties with a purchase price of more than R1.1 million, but not on new developments; See our tax tables to work out how much transfer duty you will pay;
  
  
• Transfer costs: the conveyancing fees paid to the attorney who transfers the property from the seller to you, as the buyer and registers this with the Deeds Office;
  
  
• Bond registration costs: the cost paid to the attorney registering your home loan or bond against the property with the Deeds Office;
  
  
• Home loan initiation fees: a once-off administration cost paid to your home loan provider. Remember your home loan will also have an ongoing monthly administration fee;
  
  
• Sundries: You may be charged fees to comply with Financial Intelligence Centre Act (FICA), Deeds Office fees and postage, electronic instruction or courier costs related to the bond and property registration;
  
  
• Municipal rates and clearance certificate: the cost of obtaining a municipal rates and clearance certificate, or, in the case of sectional title property, a sectional title levy clearance certificate;
  
  
• Occupational rent: this is an amount paid to the seller if you move into the property before the property has been transferred into your name; and
  
  
• Repairs or renovations: you may need or want to do repairs or renovations before you move in.

If you do not have the money to pay these costs, you may be able to include them in the home loan you take out.

Have a healthy credit record

Before you apply for a home loan, you should ideally have a good credit history.

This means you should have a bank account and at least one credit account – a store card or credit card - that you have managed well by making your repayments on time.

This will be reflected on your credit report. Read more: What is my credit report? 

You can check your credit report by requesting a free credit report each year from a credit bureau. Read more: Who is doing credit checks on me?

Your credit report is also affected by the amount of credit you have. If you already have a lot of debt and are struggling to repay it, you may be denied a further loan to buy property.

You should aim to apply for a loan when you are in a strong position to repay it. Read more: How can I improve my credit score?

If your credit report reflects that you use credit responsibly and repay on time, it will influence the interest rate you are offered on the loan. The better your credit report, the better the chances are that you will qualify for a lower interest rate on a home loan.

Save for a deposit

Before you buy a flat, house or even a plot, save for the deposit.  

Saving for a deposit:

• Gives you a better chance of getting approval for your home loan – it shows the bank you can save and are committed to buying a home. Home loan providers are less inclined to grant a loan of 100% of the purchase price plus all the transfer and bond registration costs;
  
  
• Reduces the amount you need to borrow and the interest you will pay your home loan provider – less interest ultimately reduces the cost of purchasing the property;
  
  
• Reduces your monthly home loan repayment;
  
  
• Could reduce the interest rate you are offered as the bank takes less risk in lending you the money; and
  
  
• Can prepare you for the amount you will need to spend each month when you buy a property – if you are able to save the monthly repayments and additional costs before you buy a property, you know you can afford these.
  
  

Apply for pre-approval

A home loan provider will only accept your application for a loan when your offer to purchase a property has been accepted by the seller.

You can, however, apply to a bank or a mortgage originator for pre-qualification for a loan or pre-approval of a loan. Getting this pre-qualification or pre-approval does not guarantee you a loan.

Depending on the process used to pre-qualify you or give you pre-approval, the analysis of your income and expenses may not be as thorough as it is when you actually apply for the loan.

In addition, your circumstances may change between the time you apply for pre-approval and the time you actually apply for a loan.

The final loan amount granted will also depend on the property and how much security the property affords the home loan provider to recover its loan should you default on your repayments.