Buying your first property is a huge financial commitment that requires one to fully understand all the expenses that are involved – think of it as a home buying value chain. First-time home buyers should consider all expenses involved in buying a house before putting an offer to purchase.
Angela Glover, Head of Product at FNB Home and Structured Lending, says, “First-time home buyers can steer clear of unexpected expenses by familiarising themselves with the below common expenses associated with purchasing their first property.”
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. Once the home loan has been granted, transfer duties costs and bond registration (change of property ownership details) need to be factored and budgeted for as that process is usually facilitated by Attorney’s or legal representatives of the bank and the property developers or seller. 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.
As a ballpark you can expect your repayment to be roughly 1% of your bond amount, depending on interest rates. You can find helpful calculators to help you understand what your repayments would be on our FNB App under nav Home.
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. Should you pass on before the end of home loan repayment agreement, a life cover is a stress reliever to your loved ones as that expense of settling the remaining purchase price can be taken care of as part of the insurance benefit.
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. It is important to note that some freestanding property owners have post-paid electricity and water based on their month end usage, this is usually included in their municipal rates and taxes invoice. 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.
