Becoming a homeowner may be a thrilling concept, but the realities of owning a house are not always sunshine and roses and jumping in with your eyes closed could land you in a potentially uncomfortable position. Thankfully, with a little preparation and honest self-assessment, you can avoid the common pitfalls not only of the buying process, but of the house-hunting process as well. Wayne Albutt, the Rawson Property Group’s regional sales manager for the Western Cape, shares his step-by-step process to do just that, ensuring you enter the market with your best foot forward.
Step 1: Check your credit rating
Let’s face it, there aren’t many of us who can buy a house without some kind of financing, but securing finance can be almost impossible if you’re blacklisted, have a bad credit rating, or have no credit record at all. “There are a lot of South Africans who are completely unaware of the black marks on their credit record,” says Albutt, “and that can be a nasty surprise when you approach a bank, or bond originator, with an agreement of sale and discover that no-one is interested in giving you a loan. If there’s even a one-in-a-hundred chance that your record isn’t spotless, do yourself a favour and check it before you set foot in your first show-house. That way, if anything is wrong, you can take the time to clear your name and rehabilitate your record before falling in love with that perfect house.” According to Albutt, one of the easiest ways to check your credit record is to visit a bond-originator, who can take you through the whole process, as well as give you a good idea of the size of the bond you might qualify for – a useful thing to have later on in the process.
Step 2: Consider whether buying a home is the best option for your current and future lifestyle
Once you’ve ascertained that financing is possible, it’s time to consider whether buying is a good lifestyle choice for you. “Owning property can be very rewarding, but it’s a lot of responsibility, and it’s not the right thing for everyone at all stages of life,” says Albutt. He recommends thinking about your current lifestyle as well as where you’ll be in five or ten years’ time. If you’re likely to move jobs, move cities, or be away for large parts of the year, the flexibility of renting may outweigh the benefits of owning. “Renters are also protected by things like the CPA and the Rental Housing Act, and have minimal maintenance costs and responsibilities,” Albutt points out. What renters don’t have is the freedom to do whatever they want with their space, and the satisfaction of knowing that their monthly housing costs are contributing towards a valuable asset. “The biggest thing to remember is that buying a house is long-term commitment,” says Albutt. “If your property stops suiting your needs, you can’t just up and go – at least not without possibly taking a financial hit. If you can’t be sure your life isn’t going to change dramatically in the near future, property ownership might not be the best decision for you at this stage.”
Step 3: Understand the costs of owning a home
If you’re certain that buying will suit your lifestyle, you’ll need to consider whether it’s affordable in the long run, which means understanding the ongoing costs of owning a home. That includes bond repayments, rates and taxes, and the inevitable maintenance that will need to be done, as well as the cost of turning someone else’s house into your home.
Bond repayment calculators are widely available online, but a bond originator is the best bet for finding out what size mortgage you’d actually qualify for. “Don’t rely on that old rule of thumb that you’ll qualify for bond repayments up to a third of your income,” warns Albutt. “Everything depends on your monthly net surplus.”
“It’s also incredibly important, especially now, to over-budget for things like bond repayments,” he adds. “Interest rates are rising and you will be paying more in future. Rates and taxes are also likely to increase far above inflation for the next few years – I’d predict at least 20% in the next two years, and up to 100% in the next five, in the average property sector .” As for maintenance costs, Albutt recommends setting aside a minimum of 1% of the value of your home per year – that’s R10 000 a year on a R1 million home. To increase, or maintain, the value of your asset, and as much as 3 to 5% annually as an average may be required.
Step 4: Understand the costs of buying a home
Being able to handle the costs of ownership is one thing; the costs of buying are another. “The upfront costs of purchasing a property generally have to be paid out of pocket – you can’t just add them to your bond,” says Albutt. “A lot of people think it’s just the deposit they need to save for, but there are some other significant costs to keep in mind as well. Attorney’s fees, for example, are often a surprise to unprepared buyers.” On a R1 million house with a R900 000 bond, transfer costs (including transfer duty, Deeds Office fees, attorney’s fees and incidentals) currently total over R26 000. Add to that bond costs of nearly R22 000, and a 10% deposit, and you’ll need at least R150 000 cash on hand to make the purchase happen. For a R2 million house, those numbers more than double. The easiest way to budget for these costs is to use an online Transfer Cost Calculator. You can find these on most bond originator websites, some attorney’s websites, and most real estate agency online portals. This will be fairly accurate but not a guaranteed figure.
Step 5: Draw up a wish list
If you’ve successfully made it through steps 1 to 4, chances are, buying a house is a good decision for you. Now, you get to move on to the fun stuff: drawing up a wish list of what you want in a home. Be careful how you do this, however – according to Albutt, most buyers get it wrong. “Try to stay away from physical things when drawing up a wish list,” says Albutt, “and focus on the ‘why’s, not the ‘what’s. For example, don’t write down ‘high ceilings’ when what you really love is old-style homes or a feeling of space. Don’t write ‘big kitchen’ – write ‘I love to cook’.” According to Albutt, a good real estate agent will be able to interpret these elements in order to show you homes that will not just accommodate you, but support and enhance your lifestyle and that of your loved ones. “Don’t forget to consider the needs and preferences of everyone that will be sharing your home,” Albutt adds. “It’s important that you get to know your partner’s tastes and requirements, and find a compromise that works for you both.”
Step 6: Find a suitable area
While aspirations are important, Albutt warns against being tempted to go over budget in order to get into your first-choice suburb. “It’s definitely better to compromise on area than to overextend yourself financially,” he says, “but it’s up to you whether you’d prefer the best house in a lesser suburb or the worst house in a better suburb.” While the latter is almost certainly a better investment, the former may provide a better lifestyle, and you’ll need to weigh up which of those is more important to you, or find a balance somewhere in between.
Step 7: Select three real estate agents to work with
Having chosen your ideal suburb or suburbs, it’s time to get in touch with a few real estate agents who are active there. Albutt suggests choosing one primary agent, and another two secondary agents to encourage healthy competition and a motivated search. “People are often surprised that I recommend buying through an agent, rather than doing your own property search online,” says Albutt. “What they don’t realise is that the best properties frequently sell without ever being publicly advertised, and you’ll only find out about these if you’re on an agent’s radar.” Don’t just sit back and expect your chosen agents to come to you, however. Albutt suggests being proactive when it comes to getting updates, as South African agents are more used to serving sellers than buyers, and might need a friendly nudge every now and then to prioritise your search.
By following these seven steps, you should be well on your way to finding a property that will make you happy, but if you’re still in doubt, take some time to sit down with an experienced real estate agent and run through any concerns you may have. “Buying property doesn’t have to be scary if you’ve done your homework,” says Albutt.
As for the next step, his advice is simple: don’t look for a house, look for a home.