Buying conservatively, in the first place, is the right way to go, says Shaun Rademeyer, CEO of BetterLife Home Loans.
One of the best pieces of advice you can get when buying your first home is to choose a property that costs considerably less than your maximum loan approval amount, according to Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.
Why? “Because home-ownership is about more than just making the bond repayments. There are several other expenses to take into account and you need to make sure that you will also be able to afford these every month – after you get the keys to your new home.”
The first of these expenses, he says, is the municipal property tax. It will vary from city to city, suburb to suburb and even from house to house but you will need to pay it and it is a good idea to find out what the local authority is charging the current owner before you buy any property.
The amount is usually stated separately on the municipal account for services such as water and electricity and if it is significant you might even be better off house-hunting in an area with lower rates and paying an additional amount off your bond each month instead.
At current interest rates, if you pay an additional amount of just R300 a month on a bond of R1m, you stand to cut your repayment period by almost two years and save more than R125 000 in interest in the process.
Rademeyer says the second new payment you will need to budget for is homeowner’s insurance, usually referred to as HOC, which provides for the repair or replacement of your home in the event that it is damaged or destroyed by fire, flood, wind and other natural disasters. “If you have a home loan, the lender will insist that you have such insurance – and that is not a bad thing, as you might otherwise end up paying off a bond on a property that no longer exists”.
“You can arrange to have the annual premium for your HOC debited to your bond account but you will still need to budget for it, as that will result in an increase in your monthly bond instalment. You will also need to ensure that it is increased annually to allow for the increasing value of your home and also the increasing costs of demolition and rebuilding should that be necessary.”
Thirdly, he says, you really should budget a monthly amount for maintenance and repairs and put it in a savings or “reserve” account if you don’t need it immediately. “A new home or a newly-renovated home might need very little work for the first few years, but nothing mechanical lasts forever, and it is very useful to have cash in reserve when you urgently need to call a plumber, for example, or when you want an electrician to install extra security lights, or even when your washing machine just quits on you.”
You will also need cash for small items like burned-out light bulbs and cleaning equipment, and it is a great idea to plan ahead for major maintenance items like repainting the roof every five years, so that should go in your monthly budget too.
“Finally, if you live in a sectional title complex or a security estate, you will need to budget for the monthly levy or Homeowner’s Association fee. This will generally cover the provision and upkeep of the security services and equipment, and any communal facilities such as internal roads, gardens and perhaps a swimming pool”.
“You should also be prepared for levies to go up every year, and also leave yourself some room to manoeuvre financially if interest rates go up and your minimum monthly bond repayment is increased. You want to be able to keep your home without a strain every month, and without having to neglect the maintenance or fall into arrears on other accounts.”
“Consequently, buying conservatively in the first place really is the best route to follow.”