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How to buy your first property

The thought of buying a house can be daunting. It might seem almost impossible when you are just getting started. But like any financial goal, you can achieve it if you understand what's involved, and break the process up into small, bite-size steps.

Buying your first home is also exciting! Choosing where you will live, how many rooms you need, what colour to paint the walls, and what furniture to fill it with are part of the fun. Use that excitement to get you through the admin involved.

Below we've compiled a list of five things to consider when you're venturing into this phase of your adult life:

1. Why buy instead of renting?

When you are renting your home, you are basically paying the same amount of money each month that you would pay for a bond, except you are paying off the bond for somebody else (your landlord). You might as well use that money each month to put down roots and get your own place. By buying now instead of several years later, you can enjoy the fact that your property will (probably) increase in value over the years too, worth more when you sell it than when you bought it.

2. What is a bond / mortgage?

Unless you have a big pot of savings in your bank account (a few hundred thousand Rands or million), you will probably be unable to buy your first home immediately. Most people take a loan from the bank, so that they can buy their home now: live in it, decorate it, create memories and enjoy it. The bank lends them a sum of money, for example R1.5m, then they pay off that loan in equal amounts each month over a long period such as 20 years. The amount they pay each month depends on the amount of the loan and the interest rate at the time.

Another word for "loan" is "bond" or "mortgage".

3. Can you afford it?

As a rule of thumb, banks tend to lend about 100x what you can afford to pay each month. So for example, if you are currently paying R8,000 per month on rent already, the bank would be able to lend you R800,000.

If you aren't already paying rent, or you don't know how much money you have available to pay off a bond, you will have to start looking at your bank statement and tracking your expenses. Get a statement of your last three months of bank transactions to see what you are spending most of your money on, and how much money is left over (saved) at the end of each month. You can also use personal finance apps like 22seven to help you monitor your incomes and expenses.

A good option if you are sociable is to get a home with an extra room, then rent out that room to a tenant. This can help you pay off your bond.

4. Will the bank lend to me?

Banks don't like to take risks. They have entire departments of professionals to calculate if you are going to be a good, safe bet, or a risky one. They want to lend to people who are definitely going to pay off their bond each and every month without fail. They don't want to lend to people who will skip payments, run out of money or disappear.

If you are a salaried employee and get an IRP5 from your empoyer, you are in luck. Banks see multiple payslips / IRP5s as a great indication that you are worth lending money to. They will still ask how much money you have available to service a bond, so you do still need to keep track of your monthly expenses. If you are a freelancer / self-employed / run a small business, then unfortunately you will have a harder time convincing the bank to lend to you because your records are different. I would advise keeping very detailed financial accounts for your income and having those accounts audited by a professional accountant. You can then provide the audited financials to your bank when you apply. If you are able to generate an IRP5 for yourself, this will help hugely.

Your past behaviour with respect to credit matters too. If you have a cellphone contract, have bought clothes on credit, furniture or anything else before, then a record of your "credit worthiness" exists. This is called your credit score, and it is a number that indicates how nicely you pay off credit. If you have skipped payments before, you will have a low credit score. If you have paid on time every month, you will have a high / good / perfect credit score. You can find out your credit score by using services such as Up from Experian to get your free credit score. Services like this will also help you to improve your credit score so that banks are more likely to say "Yes".

Another option, if you have parents with a good credit record (they have bought a home before, or have lots of money in the bank), is for them to "stand surety" which means the bank holds them to account for your payments, not you.

5. Start looking at prices

It's time to see what kind of home you can actually afford. Open up Google, Gumtree, Property24 or any local property website to start looking at what properties cost. You will see that apartments in complexes are usually more affordable than free standing homes, however they come with extra expenses in terms of monthly levies. Smaller homes are cheaper than bigger homes, as are homes in "good" locations vs "bad" locations. Have a look at lots of options to get a feel for what you want and what you can afford. Research this thoroughly, make a list and compare multiple properties. You can also speak to family, friends, estate agents and others to get information. When you are ready, you can start contacting estate agents and going to show houses, just to see what's out there. Homes often look amazing in photos, but in real life you will see the flaws!

Steps to success

  1. Get your financial records, proof of income and credit score in order.
  2. If you can, get "pre-approved" or "pre-qualified" by the bank (so you know what amount they will lend you).
  3. Try to get offers from multiple banks, or multiple loan providers such as Ooba, SA Homeloans or BetterBond. You want an offer with a low interest rate.
  4. Start looking at properties.
  5. Once you find one you like, get someone who has bought property before to do an inspection with you.
  6. Make sure you know all of the costs involved - any monthly levies, security costs, garden costs, typical water and electricity.
  7. Make an offer to the property owner.
  8. Engage with a transfer agent - note that transfer fees can cost up to 10% extra on top of the purchase price.
  9. Get the required compliance certificates for electrical, water and beetle.
  10. Wait several weeks or months for transfer to take place - it's not a quick process.

The steps above are just a high level view of what your home buying journey might look like. The process of buying a house is unique to everyone and usually contains much drama, unexpected costs, delays and frustration - it is after-all a home you are trying to establish for yourself, so emotions can run high. Be patient, go easy on yourself, be polite with financial institutions and real estate agents (yet persistent), and you can succeed.

Start looking forward to your housewarming party!

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