Purchasing a new home is both an exciting and a daunting step, and represents a whole new chapter in your life. But what is meant to be a happy time, can quickly be soured by unwarranted stress that could arise from you not having properly prepared yourself for all the extra costs coming your way.
“Some costs may be once off, some may need to be paid in advance as substantial lump sums, and some may be ongoing monthly costs. Being fully prepared for all the expenses associated with owning a home is your first step to peace of mind and being in control of your home finances,” stated Hollard.
To avoid landing in a pickle, the insurer has offered a checklist of costs associated with buying a home, so you are fully prepared:
-Deposit: “Banks typically require a 10% deposit on the purchase price of your home, but this can be as much as 30% depending on your credit rating. If you’re in the market to buy, you’ll need to have a deposit in hard cash. It is paid upfront and once off to the transferring attorneys,” said Hollard.
-Initiation Fee: This is usually a fee charged by the banks at the start-up of a loan. “It can be paid upfront and as a once off fee, or capitalised to your loan amount. The fee is regulated by the National Credit Act and is currently set at a maximum of R5000,” stated Hollard.
-Transfer duty costs: A tax levied by the government and one that must be paid before the property can be transferred into the name of the new owner. This cost also tends to be one of the biggest once-off upfront expenses when purchasing a property.
“The only time transfer duty is not payable in a normal sale of property is when you are buying from a registered VAT vendor (developers as an example), in which case VAT is included in the price. The higher the value of the property you purchase, the higher the percentage of duty payable. Property transactions below a certain value are exempt from transfer duty, currently set at R750 000,” Hollard added.
-Transfer costs: This constitutes the professional fee that the conveyancing attorney charges for you to register your property with the deeds office. This fee further ensures your legal rights to the property. Though it is also a once off payment, it is not to be confused with the transfer costs.
-Bond Registration Costs: “For the bank to make sure that they have some form of security over the property you have taken a loan on, they will register a mortgage bond that confers certain rights on them. This bond is registered at the same time as the transfer of the property and is done by the bond registration attorney, an attorney on the bank’s panel. Similar to transfer costs, this attorney will also charge his professional fee for registering the bond, which the buyer has to pay. On average on a bond of R650 000 the fee is around R 8500, and on a R2 million bond it’s around R16 500. This cost is paid once off, to the bond attorneys prior to registration of the bond,” Hollard explained.
-Occupational Rent: This fee only applies if you take occupation of the property before the transfer into your name is legalised and registered. The rate of this fee is usually determined by the offer you make on the property.
-Moving costs: Possibly one of the most tiresome of the costs and one that is unavoidable. Here shopping around for the best service and corresponding rates is key.
“Remember that typically month ends are busiest and more expensive. Some removal companies offer special pricing during off-peak times, so don’t be afraid to ask,” Hollard advised.
-Home warranty: According to research most default on home loans take place within the first 18 months, because this is likely to be the period in which you are most financially stressed by various upfront costs and moving expenses.
It is in this case wise to invest in a home warranty plan or policy. “This protects you as the buyer against the financial ramifications of any hidden defects that may emerge in the property for two years after taking transfer,” Hollard stated.
-Home owners and life insurance: “The bank will require protection to ensure that the value of their security on your loan - the house - remains intact. To achieve this, the bank will require that you take out two types of insurance which need to stay in place for as long as you have the loan with the bank. The first is Homeowners insurance which protects the bricks and mortar of the property against an insured peril such as fire, flood and so on.
“The second is Life cover which in the event of the death of the property owner or bond holder, the insurance will settle the outstanding bond amount so that your family is not lumbered with the debt you owe to the bank. In both instances, you have the option to take this insurance through the offering via your bond provider, or through your current preferred broker and/or insurer,” Hollard explained.
It is worth shopping around and comparing costs in order to attain the best offer. In the case of you opting to not use the banks offering you will be required to provide proof of external insurance.
-Contents Insurance- In the occurrence of loss or damage as a result of burglary or theft or at the hands of fire, flood or other extreme weather happenings. Although this insurance is recommended it is not compulsory.
“This insurance is often combined with Homeowners insurance and if you have car insurance, with one insurer, which usually results in a much cheaper combined premium,” Hollard stated.
-Rates and taxes: Once your transfer is completed, you, as the new owner will need to register your property with your local municipality. This will enable you to pay rates and taxes as well as for your electricity and water usage. The municipality usually requires you to pay a deposit and the amount is dependent on the value of the home.
-Total cost ownership: The costs unfortunately do not just end at the purchasing of a home, there are certain ongoing costs such as waste removal, electricity, water service costs, maintenance, to name a few. These all need to be budgeted for, to avoid you landing yourself in financial difficulty.
It is always best to do your financial homework beforehand to enjoy peace of mind and be able to enjoy the process of buying and settling into your new home.
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