One of the first questions you should ask yourself when looking to purchase a home is, ‘are you ready?’
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, pointed out that while owning a home is the goal of many South Africans, purchasing a property before you are ready can have costly repercussions.
There are many benefits to owning a home, including a sense of stability, as well as the freedom to make the choice of what you want to do with the property. However, there are also other things to consider.
“Along with the freedom comes the additional responsibility and cost of maintaining the property. These are but a few of the elements that potential buyers need to consider before they purchase a home,” revealed Goslett.
What to consider before buying a home
One of the most important things to consider before purchasing a home is affordability. You need to be aware of what your maximum purchasing price is, as well as to think about the additional costs that owning a home entails. However, you also need to take into consideration your lifestyle requirements as well.
Goslett revealed: “While the buyer might be able to afford a smaller property, if it does not meet their current lifestyle requirements perhaps it is best to hold back for the time being and save up more for a larger deposit. It is also important to remember that affording a home is not just about making the bond repayments, it also involves maintenance costs and rates and taxes among others.”
Long term planning of your finances is important when purchasing a home. You need to be sure that you can afford the home for the foreseeable future, as buying a home and selling it soon after may leave you worse off financially.
“Purchasing a property and then selling it within a short period of time could leave the homeowner in a worse financial position than they were before they bought the home. This is why buyers need to ensure that they can hold onto the home for a reasonably long period of time to maximise their return of investment at sale. It is vital for homeowners to have savings available to cushion them and help them to continue making bond repayments in the event that they lose their job. These savings should be able to see them through for at least two to three months or until they find new employment,” explained Goslett.
Future plans also need to be considered when purchasing a property, as this is a long term investment. For example, if you are a young couple and are planning to have children in the future, purchasing a home near a good school would be advisable. In comparison, if you are an older couple and no longer have children that stay with you, you may look to purchase a smaller property that will require less upkeep and is away from the busier parts of town.
In addition to these considerations, it is also a good idea to save up a deposit before purchasing a home. This means that you have a smaller mortgage when you purchase a property, or that you can purchase a larger property. Saving towards a home gives buyers more financial options when it comes time to purchase a property.
“There are also legal fees, transfer duties and homeowners insurance that will need to be covered,” pointed out Goslett.
Saving a deposit
One of the benefits of saving for a deposit when purchasing a house is that prospective buyers are more likely to be approved for finance and they may receive a better interest rate, according to Goslett.
“Banks typically ask for deposits of between 10% and 30% of the asking price of the property; however, there is actually no right amount for a deposit. A deposit of five percent of the asking price is far better than none at all. Depositing money after registration will bring down the capital and reduce the interest charged on the bond, but it will be far more advantageous to make a deposit upfront,” said Goslett.
Furthermore, Goslett advised that potential home buyers focus on lowering their debt levels prior to purchasing a home, as having more disposable income can be viewed favourably by the banks when it comes to applying for a bond, as well as to alleviate some of the pressure you may face when it comes to making your monthly mortgage repayments.
When purchasing a property, it is not only important to save for a deposit, but the other costs associated with purchasing a property as well. “[Buyers] will need to have money set aside for the transfer duty, registration and initiation fees, not to mention attorney fees. Having a savings plan in place will help buyers to achieve their homeownership goals and put them in a good financial position,” revealed Goslett.
Tips to help you save for home related costs:
- Keep track of every Rand:It is important that you know what you are spending and where the money is going. This will make is easier to identify where you can cut back on costs.
- Identify wants versus needs:It is easy to say that you need something, but is the item really a necessity? Divide you spending into wants and needs and see where you can cut back on the wants that you really don’t need.
- Set aside funds:Goslett suggested having a separate account for the deposit and home costs, as this can make it easier to track how much you are saving and how close you are to reaching your goal. It can also help remove the temptation of spending the money.
- Set up a debit order:One way to ensure that you save towards a deposit or other home expenses is to set up a debit order so that a fixed amount automatically gets saved every month. This can also be done with your bond repayment, so that you don’t miss a payment.
“Due to the gravity of the decision to purchase a property, potential homeowners should take their time and make sure that they are completely ready for the commitment of owning a home before they sign an offer to purchase,” highlighted Goslett.