First-time homebuyers tend to enter the property market with limited knowledge of the financial and legal processes involved in property transactions and bond applications.
Here is some guidance from property and banking experts on things to consider when buying your first home.
Stretch yourself financially, but within reason
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa says: “Buying your first home is an important financial milestone, and while stretching yourself within a responsible limit can be a smart move, it’s essential to do so with caution. Your bond repayments will likely become more manageable over time as your income grows, but you need to keep in mind potential interest rate fluctuations, rising living costs, and unforeseen expenses.
“A common financial rule of thumb is the 28/36 rule, which says that you should spend no more than 28% of your gross monthly income* on housing costs (this includes bond repayments, property taxes, and insurance) and that your total debt repayments (on your bond, car loans, credit cards, and other debt) should not exceed 36% of your gross monthly income. Another simple guideline is the 2.5 to 3 times annual income rule, meaning you should aim to buy a home that costs no more than 2.5 to 3 times your annual gross income.”
Understand the bond-application process
The lower the risk you pose to the lender, the more likely you are to have your application approved and the more favourable your interest rate and terms are likely to be.
Mfundo Mabaso, Product Head at FNB Home Structured Lending, says: “Fully understanding the process and requirements that need to be met when a bank assesses your home loan application can go a long way in increasing your prospects of getting your home loan approved.”
Mabaso lists the following key things to consider:
• Present a clean credit score. Ensuring that you pay all your monthly financial commitments in full and on time demonstrates to lenders that you are a good customer to grant credit to.
• Put down a decent deposit. “Having a substantial deposit demonstrates your ability to proactively save and increases your chances of getting approval,” Mabaso says.
• Get pre-approval. Getting a pre-approval ahead of your home loan application gives you a good indication of what you qualify for, will help guide you in choosing a property that is within your budget, and will be advantageous in negotiating a purchase offer.
• Avoid taking on additional debt. “People mistakenly assume that banks only monitor their credit profiles and perform affordability checks prior to the home loan approval process. Banks check for at least another three months, until the property registration process ends. Therefore, taking on additional debt or defaulting against credit providers can result in the bank repricing and, in extreme cases, declining the loan altogether,” Mabaso says.
Consider added costs and ways to save
You need to budget for more than just the purchase price. You pay transfer duty on properties of more than R1.21 million, conveyancing fees and bond registration fees.
Gavin Lomberg, CEO of ooba Home Loans suggests that you may consider buying a property beneath the R1.21-million threshold to save on transfer duty.
For the 2024/25 tax year, the first tier of transfer duty is 3% of the amount over R1.21 million. On a R1.5-million property, for example, it would be:
3% x (R1.5 million – R1.21 million)
= 3% x R290 000
= R8 700
However, the duty ramps up significantly on more expensive properties. On a R3-million property, at current rates, the duty is R107 356.
Lomberg suggests you shop around when applying for a bond as, in a competitive environment, banks attract borrowers with special offers, competitive interest rates and other discounts. “Each bank’s offering differs, but homebuyers can benefit from incentives such as discounts on bond registration costs and a discount on their home loan interest rate if they move their primary banking account to the approving bank,” he says.
*Gross income: income before tax and other deductions.
