- 1 - Do you have money for a deposit?
- 2 - Do you have a solid savings and emergency fund?
- 3 - Is your credit score in good shape?
- 4 - Do you have a handle on your debt?
- 5 - Can you afford the monthly expenses?
Homeownership is a huge milestone in life, but it is not a decision that should be taken lightly. It requires serious thought, extensive research, and a lot of time.
You might have reached the point where you think you are ready to buy a house but there are many factors to consider.
You might feel like you are a bit unprepared and you are uncertain about the road ahead. This is completely natural if you are a first-time buyer!
Here are 5 questions that you need to ask yourself before taking that leap:
1 – Do you have money for a deposit?
Most financial institutions want buyers to put down a deposit of 10%-20%, depending on their policies.
If, for example, you want to buy a home of R1 million, you need a deposit of at least R100,000 to secure your home loan. Do you have enough money saved up for this?
It is also important to remember that the more money you put down as a deposit, the less your monthly bond payments will be. You will also pay less interest throughout the length of your bond.
2 – Do you have a solid savings and emergency fund?
You might have enough saved up for the deposit, but did you remember to save up for the so-called closing costs? These include legal fees, transfer fees, and bond registration costs, amongst others.
You might also find that the home might need a few repairs and this is something that you will have to pay out of your pocket. These are things that you don’t necessarily think about when you rent because all of these responsibilities belong to the owner.
In this case, however, there is no landlord to fall back on. You are the homeowner.
3 – Is your credit score in good shape?
Many homeowners are concerned that they won’t be able to buy a house because they have a bad credit score.
The truth is that you don’t need perfect credit to buy a house.
There are many options available for first-time homebuyers. Having said that, the better your credit score, the better the chances of applying for a lower mortgage rate which will save you money in the long run.
Before you start house-hunting, make sure that you have paid off most of your debts and that your finances are in good shape.
4 – Do you have a handle on your debt?
Your credit score and your debt go hand in hand. If you want a healthy credit score, you need to get a grip on your debt. You don’t have to be completely debt-free to buy a home.
Financial institutions know that things like car loans, student loans, and other bills play an important part in a home buyer’s life. But they still want to know if you’ll be able to afford your monthly bond payment whilst still paying off your debt.
Lenders look at the so-called debt-to-income ratio to see how much of your monthly income goes towards paying off debt. The better this ratio looks, the better for you.
5 – Can you afford the monthly expenses?
To figure out whether you can afford the monthly expenses of running a home, you need to first calculate the mortgage payment.
Unfortunately, it doesn’t stop there – you then need to take into consideration the property taxes and insurance, rates and taxes, and utility bills. Then only you can start working on groceries and other necessities you might need. Make sure you’ve done the math before committing.
You must be truthful with yourself about your finances when answering these questions. Don’t get caught in an uncomfortable position because you didn’t do enough research and preparation ahead of time!