Before you’re ready to buy your own home, it’s important to do research, budget wisely, and learn more about property. Here, we explore what you need to know.
Buying your own home is likely the largest purchase you will ever make and it is important to fully research not only the home you wish to buy, but how much the entire process will cost you upfront and over time.
When researching to purchase your own property, you must establish what ‘purchasing power’ you have. This can be done by working out how much cash you have on hand as well as the money you will likely receive through a bond by pre-qualifying. Your details are submitted to a registered financial services provider or bond originator where you will receive an estimate of how much they are prepared to lend to you.
Deducted from this amount is how much money you will need for transfer duty and attorneys fees (to transfer the property into your name), a bond application fee (we’ll cover this in detail later), costs to transport your furniture or belongings into your home, and lastly, money for any alterations you might want to make to your new home.
Once you have arrived at this figure, you will have an estimate of how much money you are able to spend on a home. From here, you can begin to browse and shop properties that fall into your price range.
When you’ve found a property that you wish to buy, you’ll need to sign an offer to purchase form that indicates how much you’re willing to pay for the property in question. It is important to note that if the seller of the property accepts and signs the document, it becomes legally enforceable – and either party can hold the other accountable to the terms they have offered. This is why you should never offer multiple offers to purchase on various properties at any one time as - you could find yourself in serious legal jeopardy.
Get your credit score in tip-top shape
Before committing to purchase a property through a bond, it is important to ensure that you can not only afford the repayments on the amount you wish to borrow, but that you maximize your chances of being approved.
One way to do this is to keep a healthy credit score – by making timeous repayments on your debts, credit cards or short-term loans, you can build a reputable credit score that will signal your creditworthiness to lenders and bond originators.
Learn more about your credit score.
Apply for a bond
Once you’ve signed an offer to purchase, a bond is usually required to facilitate the purchase of your new home. You can choose to fund your new home entirely by cash, a bond, or a mixture of the two to meet the original price you have offered.
Applying for a bond is similar to applying for a short-term loan in the sense that you will need to provide a proof-of-income such as a payslip or a bank statement, and you will undergo a credit check. Depending on where you choose to apply, you may also be asked to verify your identity through an Identity Document or Passport, the particulars of your spouse or co-purchaser, proof of your current address, and an estimation of your income and expenses.
Bonds are repayable in a similar fashion to other loans or forms of credit. When you apply for a bond, you are applying to borrow a set amount of money repayable over a longer-term (typically 20 years) which you will pay interest on. The interest rates for bonds are usually lower than other forms of credit, as you will lodge either the entire or valued amount of the home you wish to buy as security or ‘collateral’. This means that should you fall into arrears or default on your repayment, your bond originator will have the right to reclaim your home to cover the outstanding cost of your loan.
Bonds are also unlike other short-term finance options, as you may be asked to pay a deposit or an application fee. Typically, you can choose to add your application fee into the total cost of your loan if you do not wish to pay this fee upfront. Bear in mind, however, that should you do so you will pay interest on this amount.
Once you have submitted your application, your bond originator will likely offer their verdict within one week – you may also be required to conduct an inspection of the property you wish to buy to ensure that its purchase price is reasonable.
Once you have successfully obtained a bond and have completed any other terms necessary to purchase your new home, the work of transferring it into your name begins, after which you will be able to take occupancy and (later) make any changes you desire.
When purchasing a home, it’s important to ensure that you keep an up-to-date and realistic budget that accurately depicts your financial situation. Expenses can not only mount quickly, but may arrive unforeseen depending on the nature of the property in question. You might find that you will need extra cash to move into your new home, to furnish it, or to cover any additional emergencies, not to mention continuing to settle and manage the daily expenses that you have covered, up until now.
If you need help, our handy budgeting template can assist you through this process.
Beware hidden costs
When you buy a property, you may be held responsible for settling various fees or specific expenses that might be associated with your new home. For example, if you are selling an existing property in your name, you might need to obtain a rates clearance certificate (received once you have settled any outstanding municipal accounts), or you may need to settle a pro-rata levy if you are purchasing a home in a sectional title or home-owners association.
Budgeting a reserve amount of cash, and carefully researching what you may need to pay, can be essential in ensuring that you do not encounter any hidden costs while you are in the process of buying your new home.
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