Buying a new home represents a whole new chapter in your life. But excitement can soon turn to dismay and undue stress if you haven’t prepared for all the costs you’ll soon need to pay.
These may be once-off payments, substantial upfront lump sums and ongoing monthly costs. Doing your homework is your first step to peace of mind and being in control of your home finances.
Hollard offers a handy checklist of costs associated with buying and owning a home:
Banks typically require a 10% deposit on the purchase price of your home, but this can be as much as 30% depending on your credit rating. If you are in the market to buy, you’ll need to have a deposit in hard cash. It is paid upfront and once-off to the transferring attorneys.
This fee is charged by the bank at the start of the loan (if you take out a bond). It can be paid upfront and as a once-off fee, or capitalised to your loan amount. The fee is regulated by the National Credit Act and is currently set at a maximum of R5 000.
After your deposit, the transfer duty is one of the biggest upfront and once-off costs to consider when buying a property. Transfer duty is a tax levied by the government and no property can be transferred to a new owner if this is not paid. The only time transfer duty is not payable in a normal sale of property is when you are buying from a registered VAT vendor (developers as an example), in which case VAT is included in the price.
The higher the value of the property you buy, the higher the percentage of duty payable. Property transactions below R750 000 are exempt from transfer duty.
Tip: See SARS website for transfer duty rates based on property price categories.
Transfer cost is the professional fee that the conveyancing or transferring attorney charges in a property transaction to register your ownership of the property with the Deeds Office, protecting your legal title to the property. This is paid once-off before registration and is not to be confused with transfer duty.
Tip: Try the home loan calculator to get an estimation of transfer costs.
Bond registration costs
For the bank to make sure that they have some form of security over the property you have taken a loan on, they will register a mortgage bond that confers certain rights on them. This bond is registered at the same time as the transfer of the property and is done by the bond registration attorney, an attorney on the bank’s panel.
Similar to transfer costs, this attorney will also charge his professional fee for registering the bond, which the buyer has to pay. On average, on a bond of R650 000 the fee is around R8 500, and on a R2 million bond, it’s around R16 500. This cost is paid once-off, to the bond attorneys prior to registration of the bond.
This is a fee that is payable only if you take occupation of the property before the transfer of the property into your name has been registered. The rate is usually stipulated in your Offer to Purchase.
Shop around for the best rates and service, and remember that typically month-end is busiest and more expensive. Some removal companies offer special pricing during off-peak times, so don’t be afraid to ask.
Protect your finances with a Home Warranty
Research shows that most defaults on home loans occur within the first 18 months from when the loan is taken, because this is likely to be the time you’re most financially stretched and can least afford costs associated with hidden defects.
Hollard’s Home Warranty addresses the issues around defects, with a professional property inspection that is coupled with an insurance policy. This protects you as the buyer against the financial ramifications of any hidden defects that may emerge in the property for two years after taking transfer.
The cost of the warranty is covered by the seller – all you have to do is ask for it in your Offer to Purchase. To find out more, email email@example.com or call 0861 HOME 4U (0861 4663 48).
Homeowners and life insurance
The bank will require protection to ensure that the value of their security on your loan, the house, remains intact. To achieve this, the bank will require that you take out two types of insurance which need to stay in place for as long as you have the loan with the bank.
The first is homeowners’ insurance which protects the bricks and mortar of the property against an insured peril such as fire, flood and so on. The second is life cover which in the event of the death of the property owner or bond holder, the insurance will settle the outstanding bond amount so that your family is not lumbered with the debt you owe to the bank.
In both instances, you have the option to take this insurance through the offering via your bond provider, or through your current preferred broker or insurer. It is often worth comparing and shopping around to see where you get the best offer. Where you do not use the bank’s offering you will need to provide proof of external insurance.
Although not obligatory, it’s highly recommended that you insure the contents of your home against loss or damage as a result of theft or burglary and other perils such as fire, flood and extreme weather conditions.
This insurance is often combined with homeowners insurance, and if you have car insurance, with one insurer, this usually results in a much cheaper combined premium.
Rates and taxes
Once the transfer is completed, you will need to register for rates and taxes as well as your water and electricity services. The municipality will require a deposit - the amount varies from municipality to municipality and is linked to the municipal value of the home.
Total cost of ownership
Owning a home comes with ongoing costs such as electricity, water and refuse removal (on your municipal account), garden and cleaning services, maintenance, painting and so on, which all need to be budgeted for.
There are many costs associated with your dream home. Doing your financial homework upfront is key to having the peace of mind that you can cope with all the costs, and enjoy your new home and the making of many happy memories.