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Becoming a first-time homeowner is a momentous occasion in anyone’s life, and a dream for many South Africans. There’s nothing quite like coming back from work to your very own family home!
Your property is an asset your children can inherit and use to benefit their families, making sure your generational wealth is passed on. There’s a lot to consider when you buy your first home: here are the most important things you need to know.
Affordability
Before you take the plunge, work out how much you can afford to spend on buying your home, and how much you can afford to spend on the costs of running it, such as electricity, water and general maintenance.
Cost to buy your home
This is the purchase price plus any transfer duty (a tax paid to the government) and transfer fees (the cost of transferring the home into your name). While you can finance the purchase price of your property with a home loan, you’ll have to pay for the transfer fees and duties upfront, and separately.
Although it is not strictly necessary to put down a deposit for your home loan, a 10-20% deposit is recommended. This can make monthly instalments on your home loan more affordable, and shows you are committed to the purchase.
Here’s an example, based on a R1 million property:
- Transfer duty and fees +R50 000
- Deposit R100 000
So, you need to have saved more than R150 000. The good news is these are once-off costs.
The monthly repayment of a R900 000 loan over 20 years at 10% interest is R8 685.
If the interest rate rises, the monthly instalment will also rise. Make sure to figure in higher interest rates when you see how much you can afford to pay each month.
Life insurance and your bond
A home loan is a big debt, often over a million rand. To protect their money, your bank or credit provider may require that the loan be secured against a life cover policy, that you will take out and cede to them. This ensures that if there is an outstanding amount on your home loan when you pass away, the proceeds from a life insurance pay-out can be used to pay off the loan. This can also benefit your family as they can be assured that the home they live in won’t be repossessed and will be fully paid for when you are no longer around!
When you are looking to buy a home and take a home loan, find out if life cover is required as a separate policy or if your bond includes a life insurance policy (banks and other lenders may automatically include life insurance with the loan). If a separate life insurance policy is required, select an insurance company such as 1Life Insurance, a licensed insurer and financial services provider, and apply for a life cover policy for the appropriate amount, such as R1 000 000 if the bond is R1 000 000. You can also use an existing life insurance policy and cede this to your home loan provider.
Cost to run your home
You want to keep your home secure and in good condition, so that your children have a valuable property to inherit. There are monthly costs (see the table below for details), which you’ll need to add to your monthly budget, as well as once-off or annual costs you can budget for periodically, such as repainting.
Find out if you qualify for a subsidy
Some institutions such as the National Housing Finance Corporation (NHFC) offer home buyers in the lower-income categories (households earning less than R22 000 a month) a subsidy to make home loans more affordable. Or you can visit the Department of Human Settlements to find out what is available for first time home buyers.
Listen to Cape Talk’s interview with 1Life’s Katharine Liese to find out more about the NHFC subsidy.
Neighbourhood
A home is a big purchase, and you don’t want to have to move every few years, so it’s important to buy in a neighbourhood that suits you and your family. Schools are a big consideration if you have or plan to have a family, and you’ll also want to think about things like shopping, healthcare and proximity to family and friends.
Consider transport and travel. You may want as short a commute to work as possible, or you may want to live in a less built-up area and be prepared to travel. Both will have costs – closer to work usually means a more expensive property, further from work means higher transport costs.
You want a neighbourhood where the properties are well maintained, so check for obvious signs of decay (rubbish on the road, potholes) and ask around for comments on the neighbourhood. If there are a lot of properties for sale, ask the estate agents and residents why, so that you don’t buy in an area that could become run down, or is becoming a business district. Local Facebook groups are a good source of information about specific suburbs and give you a good feel for the kind of people and issues you’ll find there.
Visit your intended neighbourhood and on weekends and weekdays and at different times of day to get a sense of noise, traffic, and other issues. This way, you’ll get a good idea if your family property will become a valuable asset in the years ahead and a lasting inheritance that can be passed down from generation to generation.
Freestanding or sectional title?
When you’ve considered how much you can afford and where you would like to buy, think about whether you want to buy a freestanding home or a sectional title. It’s important to know the difference, because it could affect your costs.
A freestanding home, typically a house with a garden, means you own all of the property and are responsible for all of the associated costs – rates, taxes, water bills and everything else.
A sectional title is when you buy a section of a property and are responsible for that section only. Typically, this is a townhouse, apartment and some secure estate properties. Theoretically, these are more secure, but you don’t have freedom to do whatever you like to the outside of your property or to communal property. An example of this is where buildings prescribe certain paint colours for outside walls and doors.
A sectional title building also has communal property such as the passages and gardens. All the owners are jointly responsible for the communal area and pay levies for its maintenance. Sectional title owners may also need to pay special levies from time to time for big projects such as painting the buildings, or upgrading the entrance or elevators.
If you are buying a sectional title property, ask the estate agent or body corporate for a set of current and past accounts so you can see how the building spends levies, and if it has reserves (cash on hand). No reserves can mean the building might introduce a special levy to boost cash reserves or pay for big projects.
You've done your prep work, now look for your family home!
You can look online at property websites, in newspapers and visit local estate agents to find out what’s on sale and get an idea of prices in your area. You can decide to bypass an estate agent and buy privately, but make sure you use a good lawyer who can guide you through the ins and outs of the process.
Putting in an offer
Think, think and think again when you put in an offer to purchase, because it is a binding contract and a major financial commitment.
When it comes to price, be guided by what you have seen on offer in the neighbourhood and by the agent’s recommendation. The listed price is just a starting point – bargaining when buying a home is accepted and normal.
Be very clear if there are conditions attached to the offer. Typically, an offer will be made on the condition that the buyer is able to get a home loan from the bank, but conditions can include other things such as faulty wiring being fixed. For second-time home buyers the offer is often dependent on them selling their current property.
Your offer may be accepted, negotiated or rejected. When an offer is accepted, you need to apply for a home loan (unless you won the lottery!)
Applying for a home loan
Your home loan instalment will consist of repayment of the capital amount and interest, so you want as low an interest rate as possible. If you have a good relationship with your bank, approach them for a home loan, but also shop around. Banks are keen to lend to people with a good credit rating so you may well be able to get a good interest rate from another bank. You can also contact bond originators such as ooba and BetterBond who will shop around on your behalf to find the best deal.
Pay attention to all the details of your home loan, including how interest is calculated, how arrears are dealt with and details of an access bond. Access bonds allow you to draw a certain amount from your bond and use it for other expenses such as renovations.
Your bank or the company that gives you the home loan may offer life insurance that will cover the outstanding amount on the loan if you pass on. If you have enough life insurance to cover the loan, you don’t have to take that additional cover. It’s a good thing to have insurance that will pay your home loan if something happens to you because it means your family will still have a home, fully paid for, if you pass on.
And don’t forget to make a will where you specify who will inherit your property in the event of your death.
Agreement of sale
When your offer is accepted (congratulations!) you need to sign an agreement of sale, pay the deposit and get ready to pay the transfer fees. Your attorney will draw up the necessary documents, obtain a rates clearance certificate and give you a final costing for the transfer costs. You’ll also need the usual FICA documents (ID, proof of address).
Transferring the property into your name can take a few months, so in the interim, save like crazy (there are always extra moving costs) and start planning what needs to be done for your move to your new home.
If you move in before transfer takes place, which often happens, you need to pay the seller occupational rent until the transfer is final. Agree upfront when you put in an offer or sign the deed of sale how much occupational rent will be. While you are paying occupational rent, you won’t be paying your home loan, so there won’t be double payments to budget for.
Getting your property ready
If there are repairs and maintenance to be done, try and do these when there is no furniture in the house – it is quicker and less messy and disruptive.
Some of the admin and paperwork you need to do when you buy a new home includes setting up a rates account with the local authority and making sure services such as water and electricity are connected. This will involve a visit to the local council offices – you can find the details on your local metro’s website. This won’t be necessary if you bought a sectional title property, because the building managers will move your account across. You’ll still need to organise water and electricity when you move in.
And if you don’t have a lot of furniture, that’s okay – but make sure you have the basics such as a fridge, oven and kitchenware and a bed. Don’t forget to plan and budget for curtains or blinds, which can be quite pricey.
Moving day
Take a deep breath. Moving can be very stressful, and expensive.
The more you pack and move yourself the cheaper it will be, but big items usually need to be moved by professionals – or by strong family members and friends with bakkies.
If you are moving into a complex let the building manager and security know when this happens so they are ready. And always tell your movers if they need to climb stairs.
If you have really big items such as an extra-large couch measure it to see if it will fit through the doors of your new home.
Have some cash on hand on moving day – you never know what you might need.
Take your time and think it through
The more you know about your future home and neighbourhood, the less likely you are to be surprised by additional expenses and security or neighbour issues. So, take your time to find your first home so that you are buying an asset that can last for many generations to come. Good luck!
| Cost to buy | More details | How much | How to pay it |
|---|---|---|---|
| Purchase price | Should include any estate agent commission and the price of the property. | Depends on the price of the property. | A 20 year home loan. Home loan calculators can show how much the monthly instalment is. |
| Transfer duty for properties over R1 million | A type of tax, paid to the government by your attorney. | SARS has the details. Increases as property price increases. | Cash – via bank transfer. |
| Transfer fees | Cost for your attorney to transfer the property into your name and register it at the Deeds Office. | Depends on your attorney’s fees and price of property. Use cost calculators as a guide. | Cash – via bank transfer. |
| Moving costs | To pack your goods and/or get them to your new home. | Get three quotes from movers. See if you can do some of it yourself. | Cash – via bank transfer. |
| Ongoing running costs | Details of the costs | How to plan for this cost | Good to know |
|---|---|---|---|
| Electricity and water | Cost depends on how much you use. Ask your local municipality for rates. | Ask your estate agent or new neighbours for costs in the area. | Installing solar power, and water tanks could save on these bills in the long term. |
| Rates and taxes | Depends on size and location of property and council tariffs. | Ask your council for tariffs; these might also be published on your metro’s website. | Your lawyer will make sure the previous owner is up to date. |
| Security | Monthly fees, depends on service, e.g., armed response or contributions to a neighbourhood watch. | The security company can give you details. | Ask how much the fees usually increase by every year. |
| Levies (sectional title only) | Depends on how much security and maintenance your building has and how many staff run the building. | Ask the body corporate for levy estimates, and by how much levies have increased in the past. | |
| Building insurance | Insurance in case your building is badly damaged or is destroyed by fire, flood or other means. | Based on the value of your property. Budget for an increase every year as the value of your property increases. | Check if this is included in your home loan agreement. |
| Home contents insurance | For everything in your home such as appliances, furniture and clothes. | Do an inventory of your contents, value them and insure for this amount. | Include this with your vehicle insurance and the premium should be reasonable. |
| Garden maintenance | You can choose to use a garden service, a gardener once a week, or maintain the gardens yourself – either way there will be a cost. | Minimum wage for gardeners is R19.09 an hour, so use this as a bare minimum and factor in extras such as bin bags, petrol for a lawnmower. | Make your garden indigenous so the plants won’t require a lot of water or maintenance. |
First published: 27 February 2020
Updated on: 1 July 2024