Purchasing a new home is both exciting and daunting, and represents a new chapter in your life. However, what is meant to be a happy time can quickly be soured by unmanageable expenses, if you're not adequately prepared.
We look at what to expect, and how to plan effectively.
A checklist of costs that come with purchasing a new house
According to a Hollard spokesperson, “Some costs may be once-off, some may need to be paid in advance as substantial lump sums, and some may be ongoing. Being fully prepared for all of the expenses associated with owning a home is your first step to peace of mind and being in control.”
To help their customers avoid landing in a pickle, Hollard offers a checklist of costs associated with buying a home, as follows.
1. Deposit: “Banks typically require a 10% deposit on the purchase price of your home, but this can be as much as 0% depending on your credit rating,” the Hollard website notes. “If you’re in the market to buy, you’ll need to have a deposit in hard cash. It’s paid upfront as a once-off to the transferring attorneys.”
2. Initiation fee: This is usually a fee charged by the banks at the start of the loan. This can be paid upfront as a once-off fee, or capitalised on your loan. The fee is regulated by the National Credit Act and is currently set at a maximum of R5,000, Hollard notes.
3. Transfer duty costs: Transfer duty is a tax that must be paid before the property can be transferred into a new owner’s name. This cost 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, for example - in which case VAT is included in the price,” Hollard notes.
“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 says.
4. Transfer costs: This is 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’s also a once-off payment, it’s not to be confused with the transfer costs.
5. Bond registration costs: “For the bank to make sure that they have some form of security over the property for which you are taking out a loan, they will register a mortgage bond that confers certain rights on them,” Hollard says.
“The 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. As with transfer costs, the attorney will charge a professional fee for registering the bond, which the buyer has to pay.
“On a bond of R650,000, the fee is around R8,500 on average, and on a R2 million bond it’s around R16,500. This is a once-off cost, paid to the bond attorneys prior to registration,” Hollard explains.
6. 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.
7. Moving costs:This is possibly one of the most tiresome of the costs, and one that is unavoidable. It’s vital to shop around for the best service and corresponding rates.
“Remember that month-ends are typically busiest and more expensive. Some removal companies offer special pricing during off-peak times, so don’t be afraid to ask,” Hollard advises.
8. Home warranty: Research indicates that most defaults 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 upfront costs and moving expenses.
It’s wise to invest in a home warranty plan or policy. “This protects you, the buyer, against the financial ramifications of any hidden defects that may emerge in the property for two years after taking transfer,” Hollard states.
9. Homeowners 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,” Hollard says.
“The first is homeowners insurance, which protects the bricks and mortar of the property against an insured peril like fire, flood and so on.
“The second is life cover. In the event of the death of the property owner or bondholder, insurance will settle the outstanding bond amount so that your family is not lumbered with the debt you owe.
“In both instances, you have the option to take this insurance via your bond provider, or your current preferred broker and/or insurer,” Hollard explains.
It’s worth shopping around and comparing costs to get the best offer. If you opt not to use the bank’s offering, you will be required to provide proof of external insurance.
10. Contents insurance: This pays out when you experience loss or damage as a result of burglary or theft, or fire, flood or other extreme weather happenings. Although this insurance is recommended, it’s 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 states.
11. Rates and taxes: Once your transfer is completed, you, 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 electricity and water. The municipality usually requires that you pay a deposit. The amount depends on the value of the home.
12. Total cost ownership: Costs don’t stop when you purchase a home. There are certain ongoing expenses, such as waste removal, electricity, water services and maintenance, to name a few. These all need to be budgeted so you don’t end up in financial difficulty.
It is always best to do your homework before you purchase a property, so you can enjoy peace of mind as you settle into your new home.