Warning for South Africans buying property

Buying a home is one of the most significant investments many people make in their lives, but experts warn that there are many more costs involved than people may realise, and being unprepared could break your budget.

According to Nedbank, buying a home can catch prospective buyers, especially first-time home buyers and their budgets, off-guard if they’re not adequately prepared for the extra costs.

Some of these expenses must be paid before the home can be registered in their name, while others are ongoing costs after becoming a homeowner.

The bank advised that anyone looking to buy a property should prepare themselves so they don’t incur additional debt by tapping into their overdraft or credit card when the time comes, or taking out a personal loan on top of their home loan.

People should instead budget for these costs and save up for a while before looking at houses or applying for a home loan.

One expense that will crop up during the home-buying experience is home loan-related costs, which people often forget because they are concerned about the monthly cost of paying their bond.

“This makes sense because your home is probably the biggest purchase you’ll make in your lifetime, and it comes with a long-term commitment of up to 20 years. But you also need to be prepared for some initial administrative costs.”

“These include the home loan initiation fee – a fixed fee of R6,037 – and you pay it to the bank for processing your home loan application.”

Bond and transfer costs are the conveyancing or legal fees you will pay to the bond attorney appointed by the bank and the transferring attorney appointed by the property’s seller to transfer ownership to you.

These costs vary according to the size of your home loan and the property purchase price, and an estimate of them can be calculated using Nedbank’s bond and transfer cost calculator.

Relocation costs

Nedbank explained that relocation and moving-in costs are other significant expenses to consider when buying a new home.

“The conveyancing process of transferring a property into your name typically takes around 2 to 3 months, time you can spend planning your move.”

Moving your household contents to your new home is unavoidable and could cost thousands of rand. The further you need to move, the higher the cost.

First, search online for a reputable mover and get quotes from at least three companies to compare prices and insurance coverage. You should also check online reviews and rankings of companies you’re considering.

According to the bank, a cost many first-time buyers are unaware of is the possibility of paying occupational rent after you’ve moved in.

It is levied and paid to the seller only if you move in before the property has been transferred into your name.

If you urgently need to move in before the transfer process is completed and the seller allows you to, you’ll live in a home that still belongs to the seller.

This doesn’t apply if you move in only after the house is transferred to your name. Check with the estate agent whether this clause is included and at what rate. The amount is typically around 1% of the property value.

Recurring costs

Nedbank explained that there are also several recurring monthly costs that home buyers should consider and include in their financial planning.

For instance, you pay rates and taxes to your local authority. This monthly bill includes land taxes and charges for municipal services like refuse collection, electricity, and water.

An important note about your municipal bill is that you must pay a deposit upon moving in. This cost varies according to the local council’s rules and will be based on the property’s past monthly costs.

You’ll receive this money back when you sell your property, but check with your estate agent or local council for how much you need to budget for your initial deposit.

“If you’re moving into an apartment complex or security estate, you may also have to pay a deposit on your monthly levy.”

The levy covers the cost of security and maintenance of common areas and facilities. It is in addition to your bill for utilities like water and electricity.

According to the bank, people should also plan for unforeseen maintenance and upgrades since unexpected expenses are the biggest threat to a homeowner’s budget.

This is why you should seek expert advice on the condition of a property before you buy it. Look for any maintenance issues or upgrades you’ll need to address immediately.

Nedbank said to be especially vigilant for structural problems like electrical systems, roof leaks, plumbing, cracks, mould, and damp.

These are costly to repair and should be pointed out by the seller or estate agent. You must know what you’re buying and how much more you need to spend – this will affect your offer.

If these defects were hidden from you and you only discover them after the sale, you can demand that the seller repair such problems or pay for them. “But that’s a legal wrangle you can avoid by checking these issues beforehand.”

“Even with no hidden defects, you may want to upgrade a house immediately.” For example, you may need to beef up security, change the locks, or repair defects you were aware of but have budgeted for.

“That’s one of the reasons to buy a ‘renovator’ – you can secure a bargain price because of acknowledged problems that need repairs, but still afford to tackle those basic repairs as soon as you occupy the property.”

For those looking to “flip” their house to sell again quickly, Nedbank said that adding touches to increase its value is important.

“And once you’ve got your new home in tip-top condition, budgeting to maintain it is simply part of the home-ownership journey.”

This is because structures and utilities that were in working condition when you bought the place can break down and need repair.

“But think of the cost of maintenance and upgrades as an investment in the value of your home.” If you don’t overcapitalise on the property, you’ll see a return on that investment when you eventually decide to sell.

Finally, Nedbank said that homeowners’ insurance is another critical aspect buyers need to consider when budgeting for a home.

This monthly premium depends on your property’s value and covers your home if it is damaged. For example, it can protect homeowners against fire damage, storms, and theft.