Article by Hardi Swart, CFP®
Owning residential property forms part of many South Africans’ goals. Buying a house is a weighty undertaking and several factors should be considered to determine if you are financially ready.
1. HAVE YOU SAVED UP FOR A DEPOSIT?
Saving for a home loan is the first vital step in becoming a homeowner. It is unlikely that the banks will give you a 100% home loan. You will need to save up for a deposit of between 10% – 25% of the value of the home you intend to purchase.
2. UNFORESEEN AND ONGOING COSTS
Homeowners insurance — Most mortgage lenders require homeowner’s insurance. But even if you buy the house outright, homeowners’ insurance can still help protect against loss due to fire, acts of nature, burglary, lawsuits, and other unforeseen events.
Life insurance — Think of it as a safety net. Life insurance for homeowners can give your family help in making mortgage payments and keeping their home should it be needed. Even if a family has only one income, all adults should be insured. Replacing the work of a stay-at-home caregiver can have a large impact on your family’s finances.
Disability income insurance — In the event you are unable to work and lose your income, disability income insurance may provide the funds you need to remain in your home.
Transaction costs — Transfer duty and registration fees form part of the transaction costs when buying a new home. Transfer duty is a form of tax and charged by lawyers for registering your mortgage. These costs depend on the value of the property and the size of the mortgage taken. In addition to these transaction costs, depending on the type of property you buy e.g. a townhouse or unit in a security estate, you might have to pay for a monthly homeowner’s levy. You should budget liberally for maintenance costs and other unforeseen events that may occur. It is best to make financial provision to not have to incur additional debt shortly after acquiring your new property.
Rates, Taxes, and Levies — These fees are dependent on the property type and the value of the property. The fees are paid to the authority that services the property like municipalities or body corporates.
3. SOURCE OF INCOME
Although no one can be 100 % sure of job security, buying a house is not advised when your source of income is not, at least, relatively secure. Building up a larger deposit and/or emergency fund is a good idea if your earning prospects are a little uncertain.
4. LOCATION OF THE PROPERTY
When choosing the location to buy property, experts believe the following considerations will make your decision easier:
Buy a house as close to work as possible – which will save you time, money and help your mental state in the long run.
Homes close to schools are important if you’re looking to start a family.
Homes close to public transport routes are becoming increasingly more important in South Africa and boost value.
Consider infrastructure – not only the upkeep of the roads but also regarding broadband, fibre and other valuable services and amenities.
5. WHEN TO CONSIDER RENTING
Although counter-intuitive, there are circumstances when it would be better to rent than to buy. This is not an exhaustive list, but a few of the circumstances in which you should rather lean toward renting:
If you are early into a new career, thinking of switching or taking a break from your career
If you are not yet ready to settle
If you move around a lot
If you are still saving up
If you cannot afford the home, you aspire to
If you do not plan to stay for at least 8 years before reselling
Hardi Swart CFP® , Managing Director Family Wealth Custodians and Financial Planner of the Year 2019
The information contained herein should not be construed as advice as defined in the FAIS Act.
Contact Hardi Swart at hardi@familywealth.co.za
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