It is said that millennials struggle more to purchase property than any previous generation. This comes as no surprise when you consider the current global economic climate, population growth, unemployment, and property prices.
If you dream of owning a home that you can call your own, it is not impossible, but you have to do thorough planning and budgeting. Remember that your new property will be an expense before it becomes an investment.
We spoke to Wikus Olivier, debt management expert at DebtSafe, to find out what you need to consider before you can even think of buying a house.
According to Olivier, these are the questions you need to ask yourself before buying a home or applying for a bond.
• It is better to do the enquiry yourself. Do not ask the bank what your credit record looks like – you have to make sure you get the best chance to get approved for a bond.
• What about your month-to-month budget? Will you have enough money for your monthly bills, living expenses and a bond or will you barely make ends meet?
• Do you have a monthly budget on your phone, computer or the fridge to indicate if your cash flow is healthy? If not, first things first: start making use of DebtSafe’s template or try a mobile app like 22seven.
• How much money will you need for a bond payment? A bond calculator, like this one from SA Home Loans, will indicate the loan amount you need to budget for. You will have to make sure you are able to pay the bond and other expenses.
• Let’s say your bond is R10 000 a month. You’ll need an extra 20%-plus for property rates and taxes, hidden expenses like levies, waste management, water and electricity, sanitation, emergency repairs and maintenance on your new house.
• Basically, the instalment determines what the affordability amount is.
• Will you be able to put down a deposit if the bank does not finance 100% of your bond? • Have you saved enough money for the conveyance cost, postage and sundries, deeds office registry fee, initiation fee, transfer fee and administration fee (see the complete list via FNB) that are not included in the bond?
• How much debt do you currently have? The bank may say that you are over-exposed.
• Your house, debt and everything else must not be more than 60% of your disposable income.
• Take note: interest rates will vary based on the repo rate. You can opt for a fixed rate, but this will include a higher tariff.
Remember: if you are struggling to pay your current bills, buying a new home will only contribute to your money woes. This means you have to be 100% certain that you can afford a home.
You’ll know it is time to ask the questions mentioned above when your budget is balanced and when you don’t want to rent anymore. Remember, if you are in a good financial position and you want to buy a house, your bond payment can be lower to pay off on your own home instead of spending that money on rent for someone else’s house – depending on the area you’re buying in. It is an important decision to make, so be mindful and consider the pros and cons carefully.