Purchasing a property is a very exciting time in your life – but it can also be very frustrating if you don’t go into the process with a full understanding of what will be required of you, and how it will impact you financially.
To avoid the frustration of purchasing a property and losing out because your finance is declined, the very first thing you need to do is get yourself pre-qualified by a mortgage broker.
Don’t make the mistake of thinking that you’ll go to your bank, or that your banker has already indicated you’ll be fine for your bond. Your banker at the branch has absolutely no involvement in your bond application process, and no influence either. So find out from a neutral party such, such as Ooba, what bond you will qualify for.
Also ask your loans consultant what loan-to-value you should qualify for. This will depend largely on your bank – but you will receive an indication of what deposit you will need. It’s important to note that the majority of 100% bond applications are rejected. That means you will almost certainly need a deposit – so budget at between 10-20% of your purchase price.
The deposit needs to be available, and not tied up in medium to long term investments that you can’t access. Upon signing an offer to purchase, you will usually need to pay a minimum deposit, that is often set at 10% of the purchase price – so have this available. It’s invested in a trust account and you get the interest on it until transfer.
It’s also important to know what transfer and bond costs you will need to pay. You can find this out from a website like http://www.ooba.co.za/calculators. On a property of R 2.5 million, with a 90% bond, your transfer and bond costs are just over R 178 000. So you’d need this in addition to your deposit.
There are also other costs to factor in. You will need home insurance. The bank doing your bond will offer you this, but often it pays to shop around for the best rate and terms. Don’t forget to find out what the excess is on the policy.
You also will have moving costs to budget for, and possibly installation costs for Telkom, satellite dish (if not already there), and the like. If you are part of a Homeowners Association or Body Corporate, don’t forget you will have monthly levies to pay – so find out what they are and set up the debit order.
Additionally, there are monthly rates and taxes to the local municipality. There is usually a delay of a few months after transfer until these accounts start coming through – so budget for this to avoid the unpleasant surprise of a 4 months’ rates bill later. The same applies to your water and electricity accounts.
Budget properly for your real estate investment and you’ll be sure to avoid unnecessary financial stress.
Principal, Harcourts Platinum