Buying a house for the first time is a life-changing event and a tremendous achievement. It is also a massive financial commitment and should be approached with careful consideration.
The process of purchasing a property is complex. There are many moving parts, fees and processes to keep track of. First-time buyers may find themselves confused and overwhelmed.
If you’re thinking about purchasing your first property but don’t quite know where to start, there are several things about the property industry, bonds, making an offer, purchasing and hidden costs that you’ll need to know.
To help you with this process, we’ve put together a collection of tips for first-time property buyers. In the post, we’ve shared several steps to buying a house first time, including:
- Deciding what sort of property you want and where you would like to be located
- Getting to grips with the preparatory finances including calculating your affordability and credit score
- Take advance of FLISP (the government subsidy for first-time home buyers)
- Forecasting all costs involved, including once-off and ongoing costs
- Applying for bond approval
- Completing the offer to purchase
- Working with the transferring and bond attorneys
As an aspiring first-time homeowner, there are several things to keep in mind for each process along the way. We suggest taking the process slow or working with a professional real estate agent.
1. Determine the Purpose of the Property
The first step to buying your first home is knowing what you’re buying, where you need to be and why you are buying. This is often a question of where you are in your life and what you anticipate for the foreseeable future.
Consider whether you’re purchasing a place that’ll be your primary residence or whether you’re investing in buy-to-let investment.
If this is your primary residence, if you’re a single, working professional, a studio or one bedroom, ideally close to where you work or socialise, would be ideal. You could be working from home now and in that case a separate room for an office, would benefit you, should you be able to deduct home office costs from your taxable income.
If you’re a bit restless, enjoy travelling a lot or work remotely around the world, a lock-up-and-go apartment in a safe building is a good idea. However, if you see yourself settling down soon, you may want to look for something bigger, possibly a house either in a secure estate or free-standing, where you can lay down roots and possibly get a roommate or AirBNB part of your property, to offset monthly costs of running the property.
2. Know Your Credit Score
Once you have a good idea of what you want, take some time to consider the financial applications of purchasing a property.
In order to apply for a home loan, the bank or financial; institution will first look at your credit score before approving a bond. Your credit score is essentially a marker of how well you manage funds and how diligently you can pay back debts owed. A healthy credit record is essential and we recommend that you work on improving it a year or even longer, in preparation for your application for finance.
Normally, banking personnel will look at how well you return small repayments in the form of credit cards, clothing accounts or similar. You can go to My Credit Check to see what your current credit score is.
3. Calculate Your Affordability
Another factor to consider, is your affordability; what you can afford now and in the long term. Typically, a first time home buyer loan is calculated over a period of 20 years. A bank will consider your ability to pay off the home loan, plus interest, in the allotted time period.
Affordability is calculated based on your income figure minus your monthly expenses, ie on your disposable income. You can use an online affordability calculator to estimate your affordability figure. With this in mind, you can begin searching for properties that fit your price bracket. Most property websites and attorney’s websites offer these calculators and more.
4. Utilise the government subsidy for first time home buyers
FLISP is a government subsidy aimed at first-time home buyers. It benefits first-time home buyers by improving their chances of home loan approval, and providing funds that can be used for a deposit or home loan repayment. The subsidy ranges from R30 001 to R130 000, depending on the size of the homebuyer’s income. The homebuyer should be earning between R3,501 and R22,000 a month. However, they must first qualify for a home loan and must be either married, cohabiting or single with at least one dependant.
5. Calculate Your Ability to Finance the Property
Once you have calculated your affordability and you have a good idea of what you can spend each month on your property, you need to calculate the additional costs that come with purchasing a home.
These costs are well known in the property industry, and seasoned property owners will certainly be familiar with them too, but first-time homeowners may be caught off guard with these additional costs as they’re not often discussed.
Often called ‘hidden costs,’ the following fees are over and above the cost of the property, and must be taken into account.
- Once-off fees include the transfer duty, lawyers fees, bond registration or initiation fees, registering attorneys fees and more
- Monthly fees can include rates and levies, internet, insurance, maintenance, utilities and security costs
Don’t get caught off guard! Make sure you calculate all of the hidden fees related to owning a property into your calculation.
6. Get Bond Approval
Once you have considered all of the above-mentioned costs and fees, you can apply for your bond. This can be done either through:
- A bank: You can approach any one of the national South African banks – FNB, Nedbank, Standard Bank, Absa etc. – for a home loan. You’ll need to make an appointment with the relevant bank personnel.
- A bond originator: Another option for funding is to work with a bond originator.
Definitely discuss this with your TEAM HOT PROP agent who will introduce you to the right people.
Whichever option you choose, make sure you make an appointment well in advance and arrive with all of the necessary documentation completed, including bank statements, identity documents, proof of address, list of monthly expenses and more.
One thing to decide is whether you’d like to be pre-approved for a home loan. The good thing about being pre-approved is that, if you find your dream property, you’re able to make an offer there and then as you already have the funding secured.
Pre-approval lasts for a specific time, so consider your readiness to buy: if you’re casually browsing the market, perhaps wait for bond approval and work on your credit score in the background, but if you’re ready to buy ASAP, get pre-approved.
7. Fill in the Offer-to-Purchase
With funding secured and your dream property in view, it’s time for you to make an offer on the property. This is done by filling in a document called the Offer to Purchase (OTP). For a first-time buyer, this can be daunting as there’s an aspect of strategy and negotiation involved. Your trusted estate agent will be there to guide you each step of the way as they want to close the sale, with all the parties on a win-win basis, just as much as you want to buy the property.
First, decide on what your offer price is. Consider a sliding scale, the lowest price and the highest price, but take all the other costs into account, such as the deposit, bond costs, transfer costs and attorney costs.
With this in mind, you can request to complete the Offer to Purchase contract that’ll then be sent to the seller to either accept or reject the offer, or make a counter offer.
There are several things to keep in mind when completing the Offer to Purchase. Make sure you get a copy of every single document you sign, for your records. These are all legally binding documents which declare your rights and responsibilities.
Buying a house for the first time is an incredible milestone, but the process can be quite stressful as it is a bit complicated and daunting However, if you walk the journey, one step at a time, with the guidance of your estate agent, it’ll make the process more digestible and very rewarding.
There are many items to keep track of, but hopefully, this post gives you a good idea of what’s coming your way and how you can prepare for it.
Are you an aspiring new home owner, thinking about purchasing your first property? Contact Jodi of TEAM HOT PROP, who is always ready to assist. You can either contact her directly and set up a call to discuss where you are in the process or, fill out the property wishlist and share your ideal requirements.
We want to hear from you!
Have you purchased your first property? If yes, what was the process like? If you have any gold nuggets and words of advice for other aspiring property owners, share them in the comments section! Alternatively, if you are in the process of buying your first property, feel free to post your questions below.
Remember to contact your estate agent at TEAM HOT PROPERTY if you have already bought and wish to sell now.
Thanks for reading! We hope some of your questions have been answered and look forward to your feedback.