When you want to buy a property (whether you buy a house, a flat or a unit in a security complex), you must be sure that you have sufficient funds before and after the purchase.
There are attorney costs, a deposit and property taxes to pay before you buy the house.
After you buy, you need to pay the bond and insurance costs every month and also be able to pay for repairs and general maintenance in order to keep the house in a good condition.
When you pay the house on a 20 or 30 year bond, it sometimes feels like it is never going to end. When it gets hard, just remember that one day your house will be fully paid and you will not have bond payments ever again. It also helps your retirement a great deal if you don’t have any rental expenses to pay when you retire.
The cash you require before the house purchase
Most of us cannot buy a house without having to borrow money from a bank through a bond or mortgage. To qualify for a bond, you need to complete forms about your income, expenses, debt and assets.
The bank will check your credit record and the condition and value of the house you want to buy.
Even if you qualify for a bond, you will still need cash for the following :
The costs (payable to a transfer attorney) to register the house in your name is determined by the value of the house. On a R500 000 house the costs are about R11 000, and on a R1 000 000 house about R17 000.
These costs consists of attorney costs to register the bond in your name (about the same as registration costs) and also a once-off bond registration fee payable to the bank who grants you a bond. They will calculate the fee on the amount you borrow.
Most banks require a 10% deposit. You can try and buy a house without a deposit. It will depend on :
• the rules of the bank where you apply for a bond;
• how much you earn;
• how much you have left over after your monthly expenses; and
• the value of the house you want to buy.
Transfer duty is a property tax that is payable on all property sold over R900,000 (the higher the selling price of the house, the higher the tax). If the seller is VAT registered (ask the agent), there will be no property tax.
Example of cash required
For a house with a price of R750,000 with a 10% deposit, you need cash upfront of R109,000. It consists of :
• Attorneys : Registration of property and bond : R28 000
• Deposit (10%) : R75 000
• Bond registration fee : R6 000
Monthly house payments
In the above example where a 10% deposit of R75 000 was paid on a house price of R750,000, you will have a bond for R675 000.
The next question is: what is my monthly payments? It will consist of :
1. A monthly bond payment. This is determined by the interest rate (currently between 9% and 11% per year) and also the term of the bond (10 to 30 years).
2. The cost of insurance and life cover, which you can take out through the bank who gave you a bond or your own broker.
3. Bank fees (it varies between R50 and R100 per month).
Example of monthly bond payments
With a bond of R675 000 you may get:
• a 20 year bond at 11% interest : R7 000 per month
• a 30 years bond at 10% interest : R6 000 per month
(Note that although you save R1 000 by taking the 30 year bond, your interest over the 30 years will be about 50% more than on the 20 year bond.)
Lastly, a tip if you are planning to buy a house.
If you buy the house while the interest rates are low, you must be prepared for the interest rates to rise (meaning a higher bond payment) while you are paying the house. This can sometimes catch us off guard if our budget cannot afford a higher payment.
If the interest rates are low, don’t buy for the maximum that you can afford but about 20% under that. Then, pay an amount on your bond every month that you would have paid if the interest rates were high. You will then pay more on your bond than you need to.
Why do this? Well, firstly, if the interest rates stay low, you will pay off your house quicker and, secondly, if the interest rates do increase you are prepared for it!