Are you financially secure enough to buy your first home?

When you buy your first home, you need to make sure you’re in a secure financial position, so that you can stay afloat in spite of your increased financial responsibility.

But are you aware of all the costs you’ll have to carry? We have a look at what financial security means, as well as the costs you can expect when you buy a home by loan.

Tip: Apply for a home loan today and start investing in your dream house.

Defining “financial security” and setting goals

According to Andrea Tucker, director at online home loan aggregator MortgageMe, financial security means something different to every one of us, and it depends on your age and life stage.

“If you have a regular income that can cover your monthly expenses, and any emergencies that crop up, and you are able to save for your future goals, you can consider yourself pretty stable,” says Tucker.

“Put another way, you can consider yourself to be financially stable if you can sustain the standard of living that you currently enjoy.”

While your path to financial security is going to be different to others around you, Tucker says, it needs to start with a plan and budget.  

“Financial security doesn’t start with ‘winging it and hoping for the best.’ Spend some time now, and jot down what your short-, medium-, and long-term financial goals are. Once you have these documented, start thinking about the steps you’ll need to take to make them a reality,” says Tucker.  

“Whatever your steps may be, you’ll probably find they involve a lot of ‘start saving now’ and ‘pay off your debts ASAP’ – and those are the two simplest ways of achieving your goals,” she explains.

READ MORE: Your retirement savings could be the key to owning a home

Preparing for your home loan

Before you apply for big, long term debt, such as a home loan, Tucker believes that you need to be in a situation that looks like this:

• Your job or income should be secure and you shouldn’t be worried about losing your job. Either that, or you could survive a few months without a salary.
• You are never late paying bills and you’re not in the habit of skipping debt payments.
• You’ve got money saved to cover the costs of buying a house. You should work on approximately 8% of the value of the property you’d like to buy.
• You’ve got funds to put down as a deposit on a property. Banks see this very favourably when it comes to calculating affordability or your risk.
• You are able to ask an expert for their educated financial opinion on your financial situation.
• Your finances aren’t keeping you up at night.
• You’re living within your means. Effectively, you’re able to finance your debt comfortably every month and you’re saving more often than not.
• New debt won’t negatively impact your financial situation. In other words, it won’t stress you out more than this current life we live in.

Tucker says that if you’re having trouble paying off your debt, you need to be firm about getting yourself out of the situation that may have you skipping payments or paying bills late.

“These behaviours are seen as unforgivable when a bank is assessing you for additional finance. You shouldn’t bother applying for finance until your record is clean.”  

Which costs should you be aware of?

According to Hayley Parry, money coach and facilitator at 1Life’s Truth About Money Initiative, there are two groups of costs for which you need to be prepared before you take out a home loan. 

The first group of costs are those associated with the actual purchase of the house. Buying a house involves a lot of legal work. Conveyancing and transfer attorneys need to liaise with the buyer, the seller, the deeds office, the banks, and even the municipalities, to ensure rates, water, and electricity bills are paid and handed over to the new owners.

“This process takes time and, as a result, costs quite a bit of money relative to the purchase. There are also taxes and fees that you need to pay the government as part of this process. Use an online calculator to estimate what it will cost you before you even put in an offer on a new home, as this number can be prohibitive if you’re not expecting it,” says Parry.

You also need to consider moving and furnishing costs. Paying the movers is one thing, but what if you don’t have any furniture and need a mattress and a toaster, amongst other things?

“If you don’t have the cash saved for these expenses you’re going to be buying on credit. You will need to factor these repayments in to your affordability calculations,” says Parry.

The second group of costs you need to consider are less obvious. Parry lists the following as the most important among these:

• Insurance: Not only will you need to insure the contents of your new home, but the bank won’t let you take out a bond unless you can prove that the building itself is insured. Have you added both of these insurance amounts to your budget calculation?
• Taxes: Municipal taxes typically increase above inflation. Before you put in an offer, ask the seller to provide you with a three-month view of what they’re currently paying for water, rates, and electricity, to give you a good idea of what you would pay going forward.
• Levies: If you’re buying in an estate or complex, you’ll need to pay a levy on a monthly basis too. Before putting in an offer, ask to see the complex’s most recent financials or AGM notes, in addition to three months’ levy statements from the seller. This will ensure you’re not surprised with unexpected future costs linked to a badly run complex or a once-off charge for maintenance and upgrades that might be in the pipeline.
• Home maintenance: If you’re upgrading from a flat to a house with a garden, for example, you may be unaware of the costs involved. Speak to homeowners and do your research so that you know how much extra you’ll need to pay per month if you need a garden service, pool service, or even just to buy some plants for your garden. You’ll be surprised how quickly it all adds up. The basic rule of thumb is that the bigger the purchase, the more you’ll need to set aside for home maintenance on an annual basis.

Once you’ve considered all of the above, you can consider taking out a home loan. Make sure you also get quotes on home insurance and shop around until you find the right option for you.