October 12 2007
By Judy Bryant
Interest rates have risen... again, so more South Africans are wary of taking on the kind of debt you'll amass when buying a home.
However, for those who still wish to take the plunge, there's a lot more to think about than just rates: there are complex legal terms, hidden costs and a convoluted process to navigate which can, at best, be confusing.
That's why we've put together some practical pointers to guide you through the maze…
There are basically two options you can choose from — a freehold property or a sectional title unit. A freehold property (which includes a cluster home) is normally registered in your own name and you can manage your property as you like, obviously within the limits of municipal bylaws. You are responsible for maintenance and improvements.
A sectional title unit is usually a flat or a townhouse. You buy more than just the unit as you share common property like the garden, a pool and security services. These are paid for via a monthly levy. The unit owners elect trustees to a body corporate, which handles administration, maintenance and other matters.
The easiest and most common way to own property is to register a property in your name or jointly with another person. You can also buy a property through a company, close corporation or trust — check what’s best for you with a good personal financial advisor. If the property is already registered in one of these bodies, you don’t pay transfer duty when you buy the property.
Unless you are lucky enough to pay cash for your house, you’ll need to apply for a homeloan. The general rule is that your monthly homeloan repayment shouldn’t be more than 30 percent of your gross monthly income. Your partner’s income is also taken into account.
Keep in mind that the cost of owning a home is far more than just your monthly homeloan repayment. You’ll need to budget for life insurance premiums, insurance for buildings and household contents, rates, taxes, water and electricity, maintenance and moving costs. Don’t be afraid to ask your bank for advice on these costs, or anything else to do with buying the property.
Do some homework when you view properties for sale. Some things to consider are:
* Convenience: distance to schools, shopping centres, work.
* Exposure to pollution, noise, traffic, flight paths, water courses and wind.
* General condition: clean and well-maintained area, old or new, streets in good repair.
* Security: reputation, proximity to vacant land, security patrols.
* Relaxation: parks, tennis courts, golf courses.
* Potential development: schools, shopping centres, major roadworks.
Offer to purchase
If you decide to buy a property, you have to sign an offer to purchase, and the seller can accept or reject this within the time period you specified. On acceptance it becomes a legally binding contract, so before signing check the following:
* For a full description of the property, as described in the title deed
* The purchase price and deposit and how these will be paid
* The occupation date and rent
* Special sale conditions e.g. granting of a homeloan
* All movable items, fixtures and fittings are specified to avoid arguments down the line.
In addition to the above, also look out for the following important clauses in the offer to purchase.
* Voetstoots: this clause means that you take the property as is, with all existing defects. Remember it’s not the bank’s responsibility to point out defects to you
* Electrical inspection: the seller will have to give you an electrical certificate of compliance when the property is transferred. This should be in writing in the offer to purchase. If any work does have to be done, the seller must pay for this.
* Cooling-off clause: in some situations you have time to reconsider your purchase. Give written notice within this period if you decide to walk away.
* Agent’s commission: this is normally paid for by the seller.
You may have to pay a deposit on signing the offer to purchase. This is generally paid to the estate agency or the attorney handling the property transfer. Both will have trust accounts to keep your money safe, but ensure you get the correct receipts and confirmation that the money has been paid into the trust account. Specify that interest on the deposit goes to you.
Applying for finance
Nowadays there are many homeloan options — you can get a very simple loan if you’re new to the property market; you need not pay your bond for the first three months; you can deposit extra funds to save interest, and so on. Speak to your bank and personal financial advisor to get advice on what’s best for your particular needs.
Interest rate options
A variable interest rate is linked to the prime lending rate; this means that when the prime rate changes, so does your homeloan rate.
You can, on the other hand, fix your homeloan rate for a certain time period. This ensures that your repayments stay the same for that period, whatever the market does. When the fixed-rate period expires your homeloan rate will revert to the current variable rate, unless you choose a fixed rate again if that option’s available.
The legal process
When your homeloan has been approved, legal work begins. A transferring attorney (normally appointed by the seller) takes care of the transfer of the property into your name or a company, close corporation or trust. The bank appoints a registering attorney to prepare the bond contract and have it registered in the deeds office. The attorneys will call you within a few weeks to sign various documents needed to register the property transfer and bond.
At this stage you’ll need to pay several costs:
* Deposit, to secure your offer to purchase
* Initiation fee: a once-off fee payable to the bank for processing the homeloan
* Assessment fee: payable to the bank for assessing the property
* Bond registration costs: paid to the conveyancer for registering the mortgage
* Transfer costs.
When the attorneys have arranged for cancelling any existing bonds over the property, registering the new bond and transferring the property, the documents are lodged with the deeds office. Then the new bond is registered and the property is transferred into your name (or a company, close corporation or trust.) The attorney lets the bank know and it pays the money for the property.
On registration your attorney should contact you to confirm that everything has been done successfully, and you will get a final statement of the account. The bank will send you a letter confirming your bond registration and the date of your first repayment. After that... move in and enjoy!