Are you financially fit enough to start climbing that property ladder? This month, we focus on savvy saving – with the view to owning your own place one day.

Purchasing  a property is one of the biggest financial commitments you’ll make. As romantic as first-time home ownership may seem (falling in love at first sight, and growing old together), your dream should be firmly rooted in a secure financial reality.

THE BUILD-UP

Deposit or bust
Jed Kemery of Neighbourhood Real Estate in Joburg (neighbourhoodrealestate.co.za), explains: ‘Although a deposit isn’t always necessary, it does strengthen your offer on a house, as it shows your commitment. If you have letters of guarantee for a large cash portion, perhaps you can forgo the deposit.’ But Antony Brady, a member of the Financial Planning Institute, suggests budgeting for the biggest deposit you can afford: ‘Generally between 10 and 15% of the purchase price. ‘A larger deposit is in the best interest of the buyer in the long run, as you will save compounding interest costs. A deposit also improves the chance of your home loan being approved, and can positively influence the interest rate applicable to the loan,’ explains Antony. ‘Some applicants may qualify for a bond without a deposit. Individual circumstances and your credit record will influence your application. I have also heard of some home-loan providers requesting deposits of between 20% and 30%. The banks are obviously quite conservative in their lending policies, because if interest rates start to climb, what all parties involved wish to avoid is anything leading to home repossession.’ 

Save for a deposit
‘Saving for a home-loan deposit will involve a strict review of your budget,’ warns Antony. ‘Appropriate savings vehicles to consider include Unit Trusts (UTs) or Exchange Traded Funds (ETFs). I would caution against saving purely in cash via a bank account for periods longer than a year, as these returns over time underperform inflation. Although UTs and ETFs carry market risk, the returns are higher over time and the risk diminishes over a longer period of investment. Obtain independent financial advice on which UT/ETF is appropriate for your individual needs and goals. Be patient, and stay the course you intended for building up that deposit.’

Seek pre-approval
However, firstly you need to ascertain your purchasing power. Approach the banks, and start the home-loan application process. ‘This will assist you to find the right property you know you can afford,’ Antony urges. ‘Various bank websites, apps, and online calculators will assist you with this worthwhile task.’ ‘Once your budget is pre-approved, you can start viewing properties in your range and getting a feel for the value available,’ before you get down on one knee and put in that offer. ‘Do your homework and then ask the tough question: If you cannot commit to saving a 10% deposit, are you really ready for the commitment (both financial and otherwise) of owning a house?’ Jed outlines the nitty-gritty: ‘Banks generally require one-third of your salary (after all your expenses) to buy a house. To ascertain this, they’ll need the normal FICA docs (ID, tax number, proof of address), your latest payslip, and your bank statements from the past six months. If you are self-employed, there are further criteria. Use a bond originator who will know which banks are “favouring” bond seekers (at any given time) and what interest rates you can expect.’ 

THE PROPOSAL 
Once you decide to ‘put a ring on it’, and your offer to purchase is accepted, an expensive legal process gets underway. According to Antony, you should factor in about 8–10% of the value of the property for costs associated with registering a bond, and the transfer of the property (including all associated legal fees): 

Transfer fees/ conveyancing costs
These are fees paid to a lawyer for dealing with the Deeds Office and transferring the property into your name. Buyers can expect to pay about 1% of the purchase price. 

Bond initiation fee
This depends on the value of the property, and this fee is legislated by the National Credit Act. 

Bond registration costs
 These cover the administration and registration of the home loan. Budget 1–1.5% of the loan amount. 

Don’t forget 
• There are currently no transfer costs for a sale under R900 000. 

• Transfer duty is levied by SARS on property acquisition. 

• Moving costs need to be factored in! 

AVOIDING THE BREAK-UP
To ensure your happily-ever-after (until it’s time to climb to the next rung on the property ladder, that is), Antony offers the following advice: 

• Should two banks offer you a loan, don’t be scared to try negotiate a better deal. Even a tiny interest rate saving over the 240 months can be significant. 

• Increasing the term of your bond (from the standard 20 to 30 years) should only be done if affordability is a real problem. 

• Will you be able to absorb a hike in interest rates? Play with a worst-case scenario of 4% above the rate you secure at purchase. 

• Keep the property for at least five years to ensure a satisfactory return. Factor in monthly insurance costs and annual maintenance costs of owning a property. Budget for around 1% of the property’s value per annum. If buying in a complex, factor in the monthly levies and how much they increase on average each year. 

Words by Ciska Thurman