5 Tips before buying your first home
For many young South Africans, the prospect of buying a home is largely out of reach. In most cases, young people in their twenties are earning starter salaries that make it difficult to meet the criteria for a bank home loan. In addition, very few young people have hundreds of thousands of Rands available to pay the transfer fees when buying a home.
Karmen Wessels from digital life insurer Sanlam Indie says that whilst the conditions are certainly challenging for millennials looking to break in the home ownership phase of life, it’s not altogether out of reach. She recommends the following tips:
- Tip #1: Start keeping an eye on property websites to get an idea of the kind of place you’re going for. Set your parameters on property websites and create specific alerts for properties within a certain area and price range to automate the search. If you’re a first time home buyer, it’s probably a good idea to start small. A smaller property in a better part of town is a great way to get your first step up on the property ladder.
- Tip #2: You definitely need to start saving if you aren’t already. The more you put away, the quicker you’ll be able to reach your goal, but any small bit will help. Be smart about where you save your money, as certain types of savings and investment accounts will earn you higher returns and ultimately more money in the long run.
“Your two biggest upfront expenses will be the deposit, and associated fees (transfer fees, bond registration fees, lawyer fees, etc),” says Wessels. “The more you can pay into your deposit, the less your monthly bond repayments and overall long-term cost will be. A good credit score is also a key factor in not only qualifying for a bond, but one with a favourable interest rate. - Tip #3: Don’t disregard ‘free’ money. Wessels classifies ‘free money’ as money that comes to you via tax returns, inheritance, a gift or other out-of-the-ordinary circumstances. “It’s easy to think of this money as separate from your main income, and therefore use it to splash out on something you don’t need. Now is the time to let this windfall serve you better - in a savings account!” She says that the same should apply to any increases in your income. “Instead of using a salary raise to upgrade your lifestyle, think about saving or investing the difference instead.”
- Tip #4: Double the income means double the chance of qualifying for a bond, and double the income for home loan repayments. This is a very personal decision, and one that is based on your individual situation, but doubling the money that you’re able to put into a deposit means relieving the pressure ever so slightly. If you do choose to purchase a property with a partner or friend, be sure to set up a contract to protect both of you in the event of an argument, sale or death.
- Tip #5: When considering a massive investment like home ownership, it’s time to take a far more holistic view of your monthly budget and financial situation. Consider savings in other areas, like downgrading your car or cutting a few luxuries out of the budget that you can do without for a year or two. It’s time to take a harder line on your monthly budget to enable more savings or even consider an additional income stream where possible. Keep in mind that while interest rates are lowered in South Africa, it’s a buyer’s market and now might be the perfect time to find your dream property.
Along with all the intricacies of home ownership, Wessels reminds consumers to remember that life insurance is a necessity for a home loan - a monthly cost that should be taken into account in your monthly budget. “Insurance is there to protect your dependents and yourself if anything should ever happen to you and you can’t pay your bond,” says Wessels.
Every Sanlam Indie policy comes with a built-in Wealth Bonus. That means they match up to 100% of your monthly premium into a growing benefit on your behalf, at no extra cost to you. What that means is that any policy you buy, even before you’ve bought a home, lets you start saving with no effort from your side.
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