What to know as a first time home buyer – South Africa
My wife and I bought our first home together. We have always been renting since we’ve been together and after everyone we’ve ever known kept telling us that we should buy a house instead of paying someone else’s bond for them, we decided it’s time to make that adult decision.
But in our case, we were lucky. The last place we rented was a brand new development in a complex where we rented with the option to buy. We moved in around December 2017 and in August 2018 we decided we’re so happy, we’re going to make an offer on the place.
Talk to friends and family that owns houses especially people who bought recently
When we started thinking of buying a house, I consulted with a bunch of different people. I spoke to friends who bought a house a year before. I spoke to my brother who has owned two houses. And they gave me valuable information. Make sure you do all your research about the property before signing those papers because you’re signing up for a bond that you will pay off for 20 years. So if you don’t do all your research and you maybe miss something about the property, you might sit with that for years before you can consider selling the property.
Advantages of buying a new home or development
Most people already know this but I’m just going to run through it anyway. When you buy a house, and it’s a new development and you’re buying it directly from the developers, you don’t have to pay a transfer cost. The transfer amount can be quite pricey. The amount is fixed according to the purchase amount which is a percentage of the purchase price of the house. I think it’s 1.55%. So if you’re buying a house for R1.4m the transfer fees alone is R22 500. And you will need to save that before applying for the house. In some cases you can have the transfer cost included in the bond but this is probably only if you’re a first time buyer.
But with a new development, you don’t need to worry about the transfer cost. You only need to pay the bond registration fee which is a small amount – in our case R6000. The other advantage is that you can go through the house and make a list of things they need to fix before you move in. That’s it really. It’s a very simple when buying a brand new home.
The other thing about buying a new development is that you can’t really negotiate on the price as it’s a new development. But if you’re buying a new house, you can negotiate the price and you can also wait to see if the seller drops the price if it doesn’t sell quick. But don’t wait too long.
Applying for a bond at a bank
This is probably the most important part. You need to make sure you get the lowest interest rate possible. This will make a huge difference in how much you pay per month. We applied for a bond at Nedbank and FNB Home Loans. My wife and I currently bank at FNB and to our surprise, they gave us the highest rate. Nedbank came through with the lowest rate from the start.
But the trick is not to take the first rate that you get. You need to fight a bit to get a lower rate and always try to get the interest rate below the current prime rate. So when we applied we got a rate of 11.5% at FNB. Then we fought back and forth between FNB and Nedbank and eventually Nedbank came back with a interest rate of 9.9% which is 0.1% below the prime rate which is currently 10%.
So just keep that in mind when applying for a bond.
Work out your budget and make sure you know about all the hidden costs
When buying a house you need to make sure that you know what you will be paying each month and the initial cost when applying for the bond. So we have covered the fact that if you buy a new development, you won’t pay a transfer cost. If you buy an existing house from a seller, you will need to pay an expensive transfer cost plus the registration fee for attorneys.
When you buy a sectional title in a complex, you have to pay your monthly bond instalment plus the levies and then sewage and water.
So you need to find out what these costs are before you buy to make sure you budget for all the costs involved. But if you’re buying a new development, the company or developers you’re buying from will be able to tell you all the required information.