Buying your first property is a huge financial undertaking that requires you to fully understand all the expenses that are involved.
When it comes to investing in your first home, think of it as a home buying value chain, FNB's Angela Glover advises.
“First-time home buyers can steer clear of unexpected expenses by familiarising themselves with the below common expenses associated with purchasing their first property,” says the Head of Product at FNB Home and Structured Lending.
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So what's involved in the home-buying value chain?
Broadly, you can break it down into six steps, Angela explains them as follows:
• Purchase and transfer costs
"An aspiring homeowner needs to understand that in order to secure that dream apartment or house that an estate agent helped you find, a deposit may need to be paid to the property developers or sellers. It doesn’t end there.
"This can take a few months to be finalised with Attorney’s and Deeds Office before moving into your apartment or house.
"For loans of less than R1 000 000 there is no transfer duty applicable, and for loans greater than R1 000 000 a sliding scale applies. Typically, attorney fees and registration costs will amount to 10-15% of your bond amount."
• Bond repayment
"It is important for homeowners to understand that there are two different types of lending agreements – variable and fixed. The variable interest rate lending agreement factors the fluctuating repo rate determined by the central banks and prime lending rate determined by your credit status. Once repo rates decrease, repayments on home loans with variable interest rates will also come down, providing some relief to homeowner’s monthly bond repayments.
"Fixed interest rate agreement means that a homeowner can pay a set monthly bond repayment, but a bit higher, and this doesn’t change whether repo rate goes up or down. For someone that wants to be stress-free and budget a constant amount for their bond repayment, this might be an ideal option provided they understand the terms and conditions of the lending agreement."
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• Insurance
"Insuring your home, household contents and having a life cover is often overlooked when it comes to the overall monthly costs that come with being a homeowner. The sarcastic question that most potential property owners like to ask is 'what could go wrong' when they are advised to take up short-term and long term-insurance as part of protecting their newly acquired asset.
"The reality is life happens and there are unforeseeable events such as geyser burst, pipe leak or house break-in, and the costs of fixing or replacing any of these things is usually not budgeted for – more so if you don’t have emergency savings. The financial planning relief that comes with having an insurance for your home and household content while knowing that you can put in a claim for a major issue should it occurs.
• General maintenance
"Houses typically need attention on minor maintenance and repairs which may not constitute an insurance claim, for example a leaking tap or a loose gutter, and other things. Budget to keep your home well maintained to make sure its value remains intact and keeps on growing."
• Levies
"If you want to live in an estate, there’s an additional monthly cost called levies which are paid to a Body Corporate.
"The monthly levies cover estate management, 24-hour security, controlled main gate access by visitors and residents, municipal water meter and sewage charge, back-up power when there’s loadshedding or outages including cleaning, repairs, and maintenance of all common areas of the estate. The levies usually increase annually depending on a Body Corporate and annual general meeting agreements."
• Rates and Taxes
"Whether you choose to buy a freestanding property, cluster, or sectional title home, you will be charged municipal rates and taxes. The rate and taxes billing includes residential property rates depending on the market value of your home, road maintenance, street light maintenance and refuse collection.
"Most cluster, or sectional title home usually have prepaid electricity meters which they need to top-up on a regular basis.
“As a prospective first-time home buyer, taking the time to understand what expenses are involved in buying a property can go a long way to help you manage your property effectively,” concludes Glover.
