Ask the right questions for a successful home loan application
There’s a reason it’s difficult to qualify for a bond. It’s because banks understand the extra costs and the burden these costs may place on a homeowner. So even though you know you’ll be able to afford the monthly bond repayment comfortably, there are other costs you need to take into account before you so confidently say that that R1,2m home fits right in with your budget.
Lolly Unterslak, property consultant at Jawitz Properties Atlantic Seaboard, gives a breakdown of the costs you might not be aware of.
- Finance costs – If buying the property with a home loan you will need to pay bond registration costs, as the buyer you will pay the legal fees of the attorney appointed by the bank to register the bond. Keep in mind that you will also have to pay a bank inanition fee, which is not included in the bond.
- Transfer costs – This is most likely the biggest chunk of “hidden” costs you need to ensure you are able to afford. In addition to the transfer duty there will be legal fees, deeds office fees, and post and other petty expenses you will be billed for.
- Possible taxes and other bank charges – this particularly comes into play if you are buying your property with money from an overseas account. You could be held liable for certain taxes and bank charges when transferring your money across borders.
- Fixtures – While blinds are typically considered a fixture, items such as curtains and appliances are often not included (unless built in) so if you require any of these items to be included in the sale you will need have it priced in.
- Occupational rent – Should you need to occupy your home before the transfer has been registered you will need to pay occupational rent.
- Levy payments – If you are buying into a sectional title scheme you must, of course, take the monthly levy into account when working on your budget and affordability. However, something everyone might not be aware of is the possibility of special levies creeping up. A special levy can be raised as a once of payment for a specific project by the trustees, the entire body corporate must then pay their share of this special levy. The seller or seller’s agent must disclose any special levies to you during the transfer negotiations.
Remember: Special levies are payable by the seller if the levy was raised before the date of the transfer and was payable in full prior to registration of transfer. The levy will be payable by you, however, if it is raised after the transfer date or if it was raised prior to registration of transfer but is collected by the Body Corporate on a pro-rata monthly basis, in which case you will be liable for the monthly pro-rata amount after the date of transfer.
- Moving costs – Moving to your new home could become expensive, especially if you are paying a moving company to handle the move on your behalf. You must also factor in the cost of moving insurance; your belongings might need to be covered by in-transit insurance on moving day.
- Decorating your new home – Fortunately this is a cost you have considerable control over. However, if not managed carefully, forking out money to revamp every room in your brand new home could equate to quite a significant sum at the end of the day.
Not only does taking these possible additional costs into account help you prepare financially, it also improves your success at getting bond approval.
According to Adrian Goslett, regional director and CEO of RE/MAX of Suthern Africa, your total monthly cost, which include bond payments, levies, rates and taxes to name a few, should not be more than 30% of your income before tax. So knowing these hidden costs before even starting your property search or bond application process will greatly improve your chances.
Goslett says that in addition to questionning your affordability you should ask yourself the following questions before starting the home loan application process.
What is my credit score?
What is my annual income?
How much debt do I have?
What is my financial worth?
What kind of deposit can I put down?
Ideally your credit score should be reflecting a good payment history and that you are living comfortably within your means based on your total annual income. Your debt should be minimal with comfortable monthly repayments as this affects your disposable income. Banks will also consider your assets, anything from income-generating properties to vehicles, before deciding what you can afford. It is important that you save, as being able to put down a decent deposit will greatly improve your chances of getting your dream home.