Are you ready to go from renting to buying a home?
Before you decide to stop renting your home and buy one of your own, there are a few things you will need to consider, says Rudi Botha, CEO of SA's biggest bond originator BetterBond.
"The first of these is whether you are ready to give up the flexibility of renting for the greater permanence of home ownership. If you currently have to relocate often for work or like to travel and take on contracts in different parts of the world, it's great to be able to pack up and go within a couple of months - and not have to worry about home maintenance or the security of your property.
"Buying a home also involves many expenses other than the purchase price and in most cases, you would need to stay put for a few years for the value of the property to grow sufficiently for you to recoup these expenses."
You might also find it beneficial to rent a home, he says, when you have just relocated to a new town and need some time to find out more about various areas where you might like to buy property, or when you have just sold your family home and are not sure where you want to settle in retirement.
"And this raises the second question to consider, which is lifestyle. It may well be cheaper to rent in an area where you really like living than it is to buy a home there. If you are renting somewhere so that you can walk to work and the shops, for example, or so that you can be close to family, or so that your children can attend a particular school, a move out of that area might not be a good idea right now.
"Similarly, if you are renting in a particular complex or estate because you appreciate all the lifestyle facilities and security it has to offer, you may only be prepared to buy in that estate or one like it."
However, says Botha, this will depend on bond affordability, which is the third factor that you need to weigh up. "In the medium to long-term, it is always better to buy property than to rent, because whatever you are paying for your accommodation is then also helping you to acquire an asset that increases in value. By renting you are just helping someone else to acquire that asset.
"Another advantage of buying a home is being able to contain your accommodation costs to a large degree instead of having to budget for an annual rent increase or being forced to move if you can't afford it. In addition, you can borrow most of the money needed to acquire a home and keep the profit on the whole purchase price when you decide to sell."
But what if you just can't afford to buy a home where you like living? Depending on your budget, he says, becoming a home owner might indicate that you have to move somewhere else, in which case you will need to think about what lifestyle changes or additional expenses might be involved. If you move away from a walkable area where everything is on your doorstep, for example, your transport costs could increase significantly.
"The alternative is to downsize to a smaller, less expensive home so you can continue to live where you are comfortable. This is a popular choice now among first-time home buyers, and it explains why units in the new apartment developments that are springing up in the older, more established parts of our cities are selling so well."
In order to work out how much you can afford to pay for a home of your own, says Botha, your best course of action is to approach a reputable bond originator like BetterBond and get pre-qualified before you go house-hunting. You can start by using the free bond affordability calculator at www.betterbond.co.za/calculators/affordability.
"The next step is to contact a consultant who will explain how much cash you will need for a deposit and transaction costs such as transfer duty, legal fees and bond registration costs, do a quick credit check and then issue you with a pre-qualification certificate. This will enable you to set a reasonable target price range and prevent you from wasting time on properties that are beyond your budget. It will also signal to sellers that you are a motivated buyer and ensure that they take your offer to purchase seriously."
Then once you have found the home you want to buy and made an offer to purchase, he says, you can access BetterBond's multiple-lender bond application process to ensure that you get your home loan at the best interest rate and on the best terms possible - at no cost. "This is very important because even a small rate difference can save you many thousands of Rands over the lifetime of that loan.
"At the moment, for example, we are finding that the average variation between the best and worst interest rate offered on a bond application is 0,5%, and on a 20-year bond of R1,5m, that translates into potential savings of more than R120 000 over the lifetime of the bond, as well as a total of about R6000 a year off the monthly bond instalments.
"In other words, making use of our services could make all the difference between being able to buy where you really want to live or having to move somewhere else."