So you have found your dream home and have put in an offer in to buy it? But what are the processes involved in finalising what may well be the most significant transaction you are ever likely to be involved in? What are the pitfalls to watch out for in making your dream home your own?
“There is some excellent support and advice available to the prospective homebuyer, which can assist in making the home-buying process stress free. Effectively leveraging this can ensure a relatively pain-free transaction allowing purchasers to enjoy the experience of taking ownership of their new home,” assures Trish Luthuli, New Business executive at Pam Golding Properties (PGP) in Gauteng.
Luthuli points out that buying a home is a contractual transaction with a number of legal documents and processes involved. “It therefore makes a great deal of sense to find a residential property professional who can explain everything to you in understandable terms and do much of the legwork for you while ensuring that you cover all your bases,” she adds.
Luthuli says that once your offer on the property has been accepted, unless you are paying cash, you will need to obtain a bond from a bank to assist in covering the purchase price and transaction costs of the property. She is of the opinion that it is best to approach a financial institution for a pre-approved bond before you decide to put down an offer to purchase a property. This will allow you to establish in advance how much the banks are prepared to lend you and what you can afford, as well as give the seller the comfort of knowing that your offer already has the necessary financial backing.
“For lenders, the individual’s total income is not the only important factor in establishing credit-worthiness,” advises Luthuli. “Your credit history and what you can afford after paying all your monthly expenses will also be examined. Lending institutions will look at household income compared to household expenditure, which includes all current debt repayment commitments.”
As a rough guideline, your bond instalment should not be more than 25 percent to 30 percent of your regular family gross income before tax and deductions. As a rule of thumb, affordability is based on 30 percent of gross monthly income and salaried employees are generally regarded as lower risk bond applicants. However, if you run your own business or earn regular overtime or sales commission, lenders have their own formulas for calculating what they consider regular income.
“Keep in mind that you will need to provide proof of earnings and credit history. Documentation required includes identification, a copy of the sale agreement and three or more months bank statements,” notes Luthuli.
“Buyers should consider consulting a bond originator such as ooba, which will apply to a financial institution for a mortgage loan on your behalf. The lending institutions will then compete to offer the best rate and overall deal to the applicant. The services of bond originators are provided free-of-charge, but they can save you thousands of rands on repayments over the period of your loan. While they may only save you a few percentage points on your interest rate, this can represent a considerable sum of money over, say, a 20-year repayment period.”
Luthuli warns those who are looking to enter the property market that banks currently do not often award 100 percent bonds. In most cases they will provide an 80% – 90% bond, and require a deposit of between 10 percent and 20 percent. So if you are purchasing a home of R1 million, you should be prepared to have at least R100 000 available to pay the deposit.
“The idea of a deposit is not to make buying a home more difficult,” explains Luthuli. “Banks want buyers to take some of the risk that is inherent in the property transaction and to show that they are committed to their purchase. The need for a deposit for that dream home highlights just how important it is to save throughout your working career.”
Retha Schutte, regional executive for Pam Golding Properties (PGP) Pretoria, advises home buyers to make sure they are aware of all the transaction costs involved in purchasing a property, as this will prevent them from being caught short of funds. Properties costing more than R600 000 are, for example, subject to transfer duty and transfer costs. These fees vary according to the price of the property and are not covered by a bond. “Your estate agent should advise you on all of the costs involved in the purchase,” she adds.
Schutte notes that a home that costs R1 million and on which the purchaser requires a bond, will attract bond registration and transfer fees of approximately R45 000 to R50 000. The bond registration fees, which are payable to the bond attorney, include an initiation fee. Transfer costs include a transfer duty. Both bond registration costs and transfer costs include FICA fees, electronic instruction fees and postage. In addition, most banks will require that you take out life insurance to cover the amount owing on the bond in the event of death.
“It is also a good idea to make sure that the previous owners have settled all of their municipal debts, as some municipalities in South Africa are reportedly attempting to claim unpaid debts from new owners. This goes against years of assuring buyers that property ownership comes free of debt, but does not change the fact that some municipalities are billing new home owners for old debt incurred by the previous owner.”
Most properties in South Africa are sold either as freehold or sectional title. Freehold means you own a piece of land and everything on it and so you are responsible for municipal rates based on the value of the land and buildings. On the other hand, townhouses and flats are usually registered under the sectional title form of ownership and this means you own only the inside of the house up to and including the ceiling. In contrast, the outside of the property , the land on which it is built, as well as boundary walls, the roof and outbuildings, are communally owned and run on behalf of all of the individual owners by a body corporate.
“Once all the conditions of the contract have been met and the deposit paid, the property is transferred into your name and the mortgage bond is registered at the Deeds Office. The conveyancing attorneys handle this part of the loan process and will contact you when the documents are ready to be signed.”
“The registration and transfer process normally takes between eight to ten weeks and the day when the transfer takes place is when you become the legal owner of the property. Most people are excited when the transfer comes through because they find owning the right kind of property is an exhilarating investment in their lifestyle and their future,” concludes Schutte.
This article “Good Support On Tap For Prospective Homebuyers” was issued by Pam Golding Properties (PGP).