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For many people, buying property is the biggest purchase of their lives, one that requires a huge financial commitment.
Often, many buyers jump onto the bandwagon because they have found a property they like or they qualify for home loan financing. It is important to understand the costs associated with buying and property ownership beyond obtaining mortgage financing.
For the past two years, property experts have been saying property remains a good investment. Historically low interest rates have helped buyers. Though interest rates increased by 25 basis points to a prime lending rate of 7.5% annually in November 2021, this is not expected to halt buying activity, according to experts.
The Absa homeowner sentiment report for the third quarter of 2021 revealed that South Africans are confident about the property market. Of those surveyed, 53% said property always increases in value and 52% regard property as a secure asset.
Whether it’s your first property or you are buying a second home, it is important to plan for your purchase. Here are some tips:
1. Reason for buying
Are you buying property to live in or rent out? If you are buying property to rent, you need to understand the rental market in the area you are buying into. Are you going to find the tenant yourself and manage the lease agreement? If you give the property to an estate agent, you will have to pay a monthly commission to the agent for managing your property over and above your monthly bond repayment, rates and taxes, and levies in the case of a sectional title,
2. Identify location
Location, location and location is important when buying property. You ideally want to buy in an area where your property’s value will grow over time. It is sometimes better to buy the worst property that may need renovations in a good street or neighbourhood because its value will appreciate with time. Websites like Property24.com and Private Property are a good start for searching for that dream home. Here, you will be able to compare areas and property prices.
3. Understand your finances
Banks and financial institutions use credit scoring to assess your ability to repay the home loan. Having a healthy credit score increases the chance of obtaining financing and at a low interest rate, according to ooba, a bond originator. The home loans specialist offers a free online affordability tool that enables potential buyers to check their credit score and establish what they can realistically afford in minutes. The use of bond originators like ooba and SA Home Loans increases the chance of being approved. These are like personal shoppers who will be able to compare finance options from all four major banks and negotiate a good deal based on what you can afford.
4. Save up for a deposit
Banks often look favourably on buyers who put down a deposit. It also gives the applicant a chance to negotiate for a better interest rate on the home loan. However, banks do approve 100% home loans.
Apart from the deposit (if not applying for a 100% bond), which is usually 10% of the purchase price, there are additional costs. These include the transfer costs, which are paid to facilitate the transfer of ownership, bond registration costs and transferring attorneys’ fees. It is a good idea to save a little extra so you can cover additional costs associated with buying property.
Do you have a property question? Email firstname.lastname@example.org or post your question in the comments box below.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.