Homeownership is one of the main life goals of many South Africans, and although the process can be a little lengthy, you should not be scared to start it.
Tens of thousands of South Africans – of all ages and affordability levels, become homeowners every year in this country, so why should you be any different?
Yes, you will need to have control of your finances, but with the right advice and knowledge, owning your own home does not need to stay a dream.
You can make it a reality in just nine steps:
1. Do the sums
Before doing anything else, you need to assess your financial situation and work out exactly how much you can afford to pay each month. Evaluate your income, savings, and monthly expenses to determine a realistic budget for your new home.
You will not only need to cover the monthly home loan repayment, but also household, homeowner insurance and life cover, and municipal costs.
Since your home remains the security of the bank, you are required to take out adequate coverage for the duration of your home loan. This usually covers:
- The physical structure of your house, including fixtures such as swimming pools
- Damage by fire, lightning, floods, and storms
- Replacement value of the property.
Consider consulting with a financial advisor to ensure you have a clear understanding of your affordability.
2. Know your credit score
Use online resources to obtain a free credit report and then check to see if your score is above 620. If not, you will need to see how you can build it up. Making use of credit facilities such as cell phone or retail store accounts does help increase your score, but if you skip any payments on any of your accounts, or pay late, your score will be negatively impacted. To keep a healthy score you need to keep your payments up-to-date and not take on too much debt.
3. Secure financing
Unless you have sufficient funds to purchase a property outright, you will need to apply for a home loan through a lender or mortgage originator. Research different lenders, compare interest rates, and choose a mortgage option that suits your financial needs.
If you are going to apply for finance on your own, without a mortgage originator, don’t make the mistake of only going to your primary bank. Many people believe that this is the best way to gain approval and a good interest rate, but the truth is that each bank has its own criteria when approving home loan applications, and this does not take into account whether you are a client of the bank or not.
Obtain a pre-approval letter to demonstrate your seriousness to sellers.
4. Start your property search
Do some homework first. Know what property size and type suits your needs, and consider accessibility to work, public transport routes, schools and shops.
Once you have a clear budget and financing in place, you can then start the exciting house-hunting journey. To get the best idea of what homes are up for sale, search online real estate portals, engage with real estate agents, and drive or walk around neighbourhoods you like to see what properties are on the market.
When narrowing down your target areas you should speak to a real estate agent or property expert to see which areas are seeing growth in demand and property values. Don’t be afraid to consider an area that may not necessarily be among the most popular now but is poised for future growth.
Make a list of potential properties to visit, and differentiate between the ‘must-have’ elements and the ‘nice-to-haves’.
5. Start viewing homes
Schedule viewings for the short-listed properties by contacting the relevant real estate agent or homeowner. Inspect each property thoroughly, paying attention to its condition, layout, and any potential maintenance or renovation requirements. Take note of the property's proximity to amenities, schools, and transportation.
When deciding which properties to view, you should not only consider those that are in line with your budget, but also those that are priced at 10% lower or higher than your budget. This will give you an idea of the price gaps between properties in certain areas. It will also allow you to make an offer that, although lower than the asking price, could be accepted.
Work closely with an estate agent to ensure you do not view too many or too few properties.
6. Make an offer
Once you've found the perfect property, submit a written offer to the seller or the seller's estate agent. Negotiate the terms and conditions, including the purchase price, deposit amount, and any additional requests or contingencies.
Don’t be tempted to offer more than market value, even if you love the property, as banks are unlikely to finance it.
The Offer-to Purchase (OTP) should include all conditions of sale, including your intended purchase price. Remember that once signed, the document is legally binding for all parties involved.
7. Conduct a property inspection
Before finalising the purchase, arrange a professional property inspection to identify any structural issues, pest infestations, or other potential problems. This step helps ensure you make an informed decision and can negotiate repairs or price adjustments if necessary.
The last thing you want to do is get the keys to your new home and then find that there are roof leaks or other problems. Make sure you understand the difference between latent and patent defects, and know which of these to look out for.
That said, an estate agent is only permitted to accept the mandate of a sale if the seller or lessor of the property has completed and signed a mandatory disclosure form that gives the seller the opportunity to disclose any defects or issues with the property that they know about. However, it is important to remember that this is focused on what the seller knows and not what the facts are.
8. Finalise the financing
Upon accepting your offer, work closely with your lender to complete the mortgage application process. Provide all necessary documentation, including proof of income, identification, and bank statements. The lender will conduct a valuation of the property and finalise the loan agreement.
9. Transfer and registration
A conveyancer attorney is usually appointed by the seller, but as the buyer pays the conveyancing fees, there is no law preventing the buyer from nominating a conveyancer they prefer. So have this discussion with your agent and/or seller.
The conveyancer handles the paperwork, coordinates with the seller's attorney, and facilitates the payment of transfer duties and other fees. Once completed, the property will be registered in your name.