You need a plan in place even before you put in your first offer
29 June 2023 - 05:00
bySIMON BROWN
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Let’s leave aside the debate of whether to rent or buy the house you live in. If you are planning to buy, what should you put in place beforehand?
First, you need a personal budget, so that you’re sure you can afford the new home. This includes not only paying off the bond but also the maintenance costs, building insurance and rates and taxes. I would set the cost of the bond at 1% higher than the prime rate. It’s unlikely, but if the Reserve Bank does increase rates further, this will give you wiggle room. And if the bank holds off on further hikes, you’ll have a little extra in your budget every month.
My trick is to buy smaller and cheaper homes in better areas
Second, save for a deposit of at least 10% — though more is always better. This will not only reduce your monthly bond repayments but improve your rating with the lender, which may let you get a better rate.
Get a pre-approved bond and shop around for the best interest rate. This gives you negotiating power with the seller. But be careful with a pre-approved bond: the bank will likely offer you way more than you can comfortably afford, so don’t use all of it.
Also remember to factor in all the other costs of buying: transfer fees and tax on the value of the property; the cost of actually moving; and the smaller things, such as new curtains and the like.
Find an area that works for you, not just now but also in the future. Where will your children be going to school? Being closer saves travel time. The same applies for where you work. Sure, you may change jobs, but starting close is ideal. Also consider other important factors — a place of worship, for example, and access to public transport as well as, of course, the security of the area.
Decide what’s a must-have for your new home, what’s a nice-to-have and what you definitely don’t want. I never want a pool — they’re expensive to maintain and are usually underutilised. But have your own list and be strict about it.
When you have all of this and a budget for spending, you can start looking at homes in your preferred area.
Here, my trick is to buy smaller and cheaper homes in better areas. A more desirable area will help when you decide to sell one day. And being at the lower end of the pricing range in a desirable area gives you a larger potential market of buyers who may want to live in the area but need to buy a cheaper property due to budget constraints.
Last, when you make an offer to purchase remember that it is legally binding. You should also start cheeky: I recommend starting 20%-25% below the asking price. The agent will argue, but they have to take all offers to the seller and you may get lucky. If not, this low offer still sets an anchor point and puts the pressure on the seller.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
PERSONAL FINANCE
SIMON BROWN: Top tips for buying a house
You need a plan in place even before you put in your first offer
Let’s leave aside the debate of whether to rent or buy the house you live in. If you are planning to buy, what should you put in place beforehand?
First, you need a personal budget, so that you’re sure you can afford the new home. This includes not only paying off the bond but also the maintenance costs, building insurance and rates and taxes. I would set the cost of the bond at 1% higher than the prime rate. It’s unlikely, but if the Reserve Bank does increase rates further, this will give you wiggle room. And if the bank holds off on further hikes, you’ll have a little extra in your budget every month.
Second, save for a deposit of at least 10% — though more is always better. This will not only reduce your monthly bond repayments but improve your rating with the lender, which may let you get a better rate.
Get a pre-approved bond and shop around for the best interest rate. This gives you negotiating power with the seller. But be careful with a pre-approved bond: the bank will likely offer you way more than you can comfortably afford, so don’t use all of it.
Also remember to factor in all the other costs of buying: transfer fees and tax on the value of the property; the cost of actually moving; and the smaller things, such as new curtains and the like.
Find an area that works for you, not just now but also in the future. Where will your children be going to school? Being closer saves travel time. The same applies for where you work. Sure, you may change jobs, but starting close is ideal. Also consider other important factors — a place of worship, for example, and access to public transport as well as, of course, the security of the area.
Decide what’s a must-have for your new home, what’s a nice-to-have and what you definitely don’t want. I never want a pool — they’re expensive to maintain and are usually underutilised. But have your own list and be strict about it.
When you have all of this and a budget for spending, you can start looking at homes in your preferred area.
Here, my trick is to buy smaller and cheaper homes in better areas. A more desirable area will help when you decide to sell one day. And being at the lower end of the pricing range in a desirable area gives you a larger potential market of buyers who may want to live in the area but need to buy a cheaper property due to budget constraints.
Last, when you make an offer to purchase remember that it is legally binding. You should also start cheeky: I recommend starting 20%-25% below the asking price. The agent will argue, but they have to take all offers to the seller and you may get lucky. If not, this low offer still sets an anchor point and puts the pressure on the seller.
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