Advice for first-time home buyers
So you've been earning a steady income for the past few years and your recent promotion convinced you that it was time to make your mark on the world of property by buying your first home. Bond originator ooba notes that 51.7% of its bond applications in June were from first timers and a survey by FNB reveals that first-time buyers were estimated to make up 22% of total buying in the second quarter of 2013.
Whether you decide to go it alone, or buy with a partner or friend, purchasing a property is undoubtedly one of the most important financial decisions you will make. But it can also be a rather complicated and lengthy process, which is why it is important to have an expert assist you every step of the way.
"Once you have decided to enter the property market and know in which areas you would like to purchase, the first step you should take is to consult a reputable estate agency that specialises in your area," noted Pam Golding Properties Hyde Park joint area manager, Rupert Finnemore. "While it is useful to gain a feel for the property markets and neighbourhoods in various suburbs by browsing property websites and the weekend property guides, it is important to consult an area expert from a well-known agency with a sound track record who can provide you with useful advice regarding prices achieved in various areas, and other relevant market information."
Some sellers prefer not to advertise
Finnemore elaborated: "An experienced, professional agent has considerable knowledge of all the processes involved in purchasing and selling a property, so consulting with an area specialist will assist you in managing the many necessary aspects (some of which can be technical and complex) to make an informed decision. Given that buying or selling a home is a contractual transaction with several legal documents involved, it makes sense to work with a professional who can explain everything to you in simple terms and ensure that you've dotted every 'i' and crossed every 't'.
In addition, they also have properties on their books which may not be advertised elsewhere, which will expand your access to a much wider selection of homes to consider. Some sellers prefer not to advertise, citing privacy as a prime concern.
"Moreover, an estate agent can do a lot of the legwork for you and save you considerable time and emotional effort. For example, a property advertisement may tell you how many bedrooms a home has, but it will not reveal the size of the bedrooms, where they are situated in a house, or how much cupboard space there is. By telling the estate agent exactly what you want in a home, they can eliminate a lot of unsuitable properties immediately."
Once you have decided in which area you would like to live and what your requirements are, it is important that you decide on a price range that is well within your means. Your estate agent can advise you on whether your requirements and price range are realistic for the area and, if not, can suggest alternatives. "Remember that owning a home is not just about the monthly bond repayments," cautioned Pam Golding Properties Hyde Park joint area manager, Jonathan Davies.
"Rates, maintenance costs and utility bills, which were most likely covered by your landlord, if you were previously renting, are all expenses that have to be taken into account when you are deciding what you can afford. In addition, if you are planning on buying in a residential complex, like many South Africans do, then there are also levies that have to be taken into account, which differ from complex to complex. Once again, your estate agent can assist you in detailing all these costs and help you decide what you can afford right from the start."
After you have chosen the property you would like to buy, you would then submit an offer to purchase in writing to the seller, which should also be facilitated by your estate agent who is familiar with the process of formulating and submitting offers. Your offer should be based on the asking price of the property, although sometimes sellers indicate that they are prepared to accept offers below the asking price. You may also need subsequently to negotiate above your initial offer if the seller considers it to be too low, or you may lose out on a property you really like to a buyer with a more attractive offer.
"This means that you may not get the first property on which you put in an offer to purchase, but you shouldn't be discouraged. There are many properties out there, each with its own unique features and, with the help of your estate agent, you are most likely to find more than one property that meets all your most important requirements," maintained Davies.
Get a bond from a bank
Once your offer has been accepted, then the next step is to get a bond from a bank for the amount that you need to borrow. Make sure that you have all the necessary paperwork together, especially your employment and credit history. It is advisable to consult a bond originator, which your estate agent can recommend, to assist you in identifying the most suitable financial institution whose terms and conditions (including any fees and the interest rate to be charged) best meet your requirements.
Their services are free and although a difference of a few percentage points in the interest rate may not seem like much, it can make a huge difference when paying off a 20-year loan. In most cases, a bank will require a deposit of between 10% and 20%, which you will need to take into consideration when making an offer and applying for finance.
While 100% bonds are available, they represent a small percentage of total bonds granted. You can also opt to approach the banks before you decide to put down an offer to purchase on a property, so that you know in advance how much the banks are prepared to lend you. This is known as pre-qualifying for a bond.
"You should also be aware of all the transaction costs involved in purchasing a property, as it is an involved legal process," explained Finnemore. "Your estate agent can advise you on these. Properties that cost more than R600,000 are subject to transfer duty and transfer costs. These fees vary depending on the price of the property and cannot be covered by a bond.
A home that costs R1 million, for example, will attract bond registration and transfer fees of approximately R45,000 to R50,000, depending on the amount of your bond. The bond registration fees, which are payable to the bond attorney, include an initiation fee. Your transfer costs include a transfer duty. Both bond registration costs and transfer costs include FICA fees, electronic instruction fees and postage. Finally, most banks will require that you take out life insurance to cover the amount owing on the bond in the event of death."
The process of registration and transfer of the property takes approximately three months, which may seem like an eternity to eager first timers. "But it's definitely worth the wait," said Davies. "Owning the right kind of property is both an investment in your lifestyle and generally a sound financial investment over the medium to long term."
