What does it cost a first-time home buyer to buy a home?
Lately, many first-time home buyers are entering the housing market as banks are eager to give mortgages to young professionals who are buying their first homes. However, many of them are totally unaware of the extra cash they are expected to have available when purchasing a home.
Unfortunately, the price written on the Offer to Purchase is not the only money a home buyer needs to come up with to conclude a home-buying transaction.
A deposit
Generally, a home buyer needs to put down a 10% deposit or more in order to secure funding for the rest. Young professionals are advised to start saving for such a deposit as soon as possible if they know they would like to buy a house in the near future.
However, banks are generally rather generous with first-time home buyers and often offer them 100% loans. Still, in some cases, they may decide to grant less, like only 80% of the requested loan, and expect the buyer to pay the balance of the purchase price as a deposit, in cash. This is a challenge that many first-time home buyers need to overcome and be prepared for before they start their house hunt, as they cannot assume to obtain 100% loans.
Transfer costs
This tax is payable to the government in the form of transfer duties and is payable over and above the price written on the Offer to Purchase, as the property is transferred from one owner to the next. Currently, no transfer duties are payable on properties bought for less than R1100 000, also not when a buyer buys directly from a developer.
Do ask your estate agent or attorney about the expected amount you will pay when buying a property to be sure that you have all your facts straight prior to setting your purchase price range. Total transfer costs include a set transfer duty, the transfer attorney's fee, a deeds fee, sundries, and 15% VAT on the attorney's fee that is payable in cash or direct transfer to the transfer attorney.
To give you a broad indication of the amount you are looking at, here are a few examples:
Say you want to buy a house for R920 000; you can expect to pay R34 836 in transfer costs (at the time of this post). Say you want to buy another for R1 500 000. You can expect to pay R 54 150 in transfer costs. This amount is not included in the selling price, nor can it be included in the total bond you will apply for.
Bond costs
Besides the transfer fees, a home buyer must pay bond costs on the amount they borrow from the bank. Bond costs include the bond attorney fee, the Deeds office fee, sundries, and 15% VAT on the attorney fee, which is also payable in cash or direct transfer.
To give you a broad indication of the bond costs you are looking at, here are a few examples:
Say you received a 100% loan for R920 000; you can expect to pay R34 836 in bond costs.
Say you received a 100% loan for R1 100 000; you can expect to pay R 37 381 in bond costs.
To be clear, this amount is on top of the purchase price and cannot be included in the loan amount you are applying for.
Monthly bond repayment
This is a very important point to note: the larger the amount you can pay as a deposit, the smaller your loan will be and the smaller monthly bond repayment installments you will have, which has a huge impact on your monthly expense budget. Your bond repayment obligation will kick off the moment the property has been registered in your name. Be sure to discuss these repayments with your bank and bond attorneys if you are unsure of how it works and what the effect of late or non-payments will have.
Levies, rates, and taxes
First-time home buyers should ask the real estate agent about the cost of living in an estate or security complex, should this be the property being considered. Such costs are called levies and are payable to the body corporate of the complex or estate on a monthly basis, normally in advance. Be sure to ask whether any special levies are being implemented to budget for any large repairs being planned that you will be required to pay for on a monthly basis. Make sure that water is included in the monthly levy and budget for your own electricity bill.
If you decide to buy a free-standing home, you must pay rates and taxes to your local municipality every month, based on the property's value. That will be besides your water and electricity bill you will have to pay monthly.
Home Insurance
Your bank will require you to buy home insurance if they grant you a loan. This insurance covers the home from unexpected damages such as fire, structural damage, water damage etc. Even if you don't have a loan, it is wise to purchase insurance against such eventualities.
Consult an insurance professional to explain the details of the insurance policy. Also be sure to contact various companies to find yourself the best deal! Remember that home insurance is compulsory when taking a loan and a monthly payment schedule needs to be maintained, which takes another cut of your budget if you decide to purchase a home.
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