First home? Research carefully

Buying your first home can be both exhilarating and terrifying. It’s a goal that most of us would like to achieve; however, the financial implications require careful consideration.

This article, which is based on our recent podcast, unpacks the expenses and offers tips to ensure you secure the property you need for the best possible price.

Tip: Buying a new home? Don’t forget to insure it. Click here to find out more.

First check your finances

Choosing a new home is among the most important financial decisions you will ever make.

The most crucial factor to consider when house hunting is your financial situation, says Nicolette Titus, an agent with Pam Golding Properties.

“You must be ready to cover the costs, including your bond, transfer costs, a deposit - should a full bond not be granted - and the maintenance of your new property.

“During the Covid-19 pandemic, interest rates were very low and favoured buyers. Now they are steadily increasing, which may affect affordability. We expect buyer activity to decrease as the cost of living increases,” says Titus.

Two further effects of the interest rate depression, notes Dominique dHotman, chief strategy officer for Ooba Home Loans, was an influx of new buyers into the market, and existing homeowner upgrades.

The magnitude of the impact is noted by Tradingeconomics.com, which points out that South Africa’s interest rate averaged 11.96% from 1998 until 2022, reaching an all-time high of 23.99% in June 1998 - and a record low of 3.50% in July 2020.

Rent-to-buy can be a point of entry

If you are financially unprepared to buy a property, rent-to-buy may be an option, dHotman suggests. This solution is typically offered by lenders other than banks.

Rent-to-buy differs from an outright purchase in that the property is sold, but ownership is not transferred to your name until the final instalment is paid.

“It is, in essence, an instalment sale,” dHotman says. “Property developers use the solution to attract tenant owners at a lower price than an outright sale. The intention is that the buyer’s income and instalment increase over time until the eventual transfer can take place.”

Rent-to-buy is sometimes offered over a shorter term, such as seven or ten years, but with a bulk payment at the end. Like a balloon car payment, the bulk amount can be refinanced.

Buy or build?

Vacant land is an option for first-time buyers, but buying a house may be a better choice than going through an entire construction process, says Titus.

“I have seen inexperienced owner-builders end up with a plot of land, some bricks and a half-finished foundation that they’re trying to sell because they got themselves in trouble. If you don’t have the right contacts to assist, the conventional way of buying a house may be a better choice.”

dHotman says people who consider building often don’t calculate the real cost.  

“They see the land is an affordable R400,000 or R500,000 – and then, to their shock, the house they want to build on it costs much more than they expected. Furthermore, when you buy land, you typically only get a 50% loan, meaning you will need more cash to complete your project.

“Buying in a development is a better idea for first-time buyers," dHotman says. "There are some lovely projects available. An added benefit of buying in a new development is that you won’t have to pay transfer duties.”

The preparation process

For first-time buyers, it is essential to check your credit score, know what you can afford, approach a bond originator, and get your pre-qualified buyer certificate.

The latter allows you to shop for a house in the price range for which you qualify. It will also indicate that you are a serious buyer with a solid offer, says Titus.

Likewise, a cash offer is more substantial if you have proof, such as a bank-guaranteed cheque.

Know that there will be costs, even if you buy for cash, cautions dHotman. “Besides the purchase price of your new home, you will have to put down a deposit; and pay for bond registration and transfer costs, initiation fees, moving costs, possible repairs and maintenance, rates and levies, and security.

“There are some excellent online calculators to help you determine what everything will cost in advance so that there are no nasty surprises.”

If you want to buy into a sectional title complex, find out what the levies are and whether the complex’s finances are in good order. Is regular maintenance done? Is the complex up to date with all of its expenses? Will a special levy come up soon, or is there money available to pay for huge expenses, such as replacing lifts?

Withdrawal from a purchase

Once you have signed an offer to purchase, it’s a binding sales agreement. However, you may still be able to cancel your purchase under certain conditions.

“You can still withdraw from the purchase if a cooling-off clause is included in the sales agreement,” Titus notes. “The cooling-off period is usually five days, and the buyer has to make sure the clause is added to the offer to purchase.”

Withdrawal beyond the cooling-off period may result in the buyer losing their deposit or becoming liable for the agent’s commission.

A seller can also withdraw from the transaction, or insist on a specified transaction period. For example, a 72-hour clause may be implemented, where the buyer is required to have their bond in place within that period. If not, another offer to purchase may be accepted.

In such a case, a bond originator can be your ally, as they can get a bond in as little as 48 hours, provided you have pre-qualified.

Avoiding mistakes

One of the biggest mistakes buyers make is purchasing an overpriced property, says Titus.

“Always research prices when you want to buy a home. Look at other properties selling in that area, and consider whether the property you are interested in has additional elements that increase the value and justify a higher price.

“Another mistake is not checking whether any extensions to the property have approved plans,” she says. “Without these, extensions may well become a costly nightmare. Always check with the agent as to whether there have been alterations to the property.

“Buying a house in an area you are not familiar with may also lead to problems. Speak to the current owner or the neighbours about the area before you sign your offer,” says Titus.

dHotman adds that life partners buying a property together should have a written agreement to outline proceedings should the relationship end.

Buying a home is a massive responsibility. An informed and prepared buyer is in a much stronger position to get it right from the outset.

Tip: To really make it your own, you may wish to alter your new property. A personal loan could assist you - find out more here.