You need a 'big picture' budget when buying a home

How much the bank will lend you is not the only cost to consider when you're applying for a home loan. Here's some help with those 'hidden' costs.

As a hopeful homebuyer, you need to budget for the ongoing, 'hidden' costs of home ownership, and make sure you're able to afford these along with your monthly bond repayments. Once you take occupation of your brand-new home, you'll have to pay for municipal services like water and electricity and, once the property transfer has taken place, you'll also be liable for municipal rates and taxes — or levies, if it's a Sectional Title property.

If you fail to pay these expenses, you could find yourself facing legal action — and if you default regularly on those municipal payments, you might even lose your lovely home when it's sold to clear your debt. So, before you commit to that dream home, first find out what the seller has been paying for municipal services and rates over the past year and build those costs into your monthly budget.

BetterBond CEO Carl Coetzee advises that you make room in your budget for a monthly amount to maintain your home and garden. "Many people don't know this, but keeping your property in a reasonable state of repair is actually a condition laid out in most home loan agreements. But, besides this, the long-term financial consequences of neglect are usually greater than the cost of regular maintenance."

Coetzee also happens to be CEO of BetterSure Financial Consultants, the specialist insurance arm that complements BetterBond's suite of services, and he's acutely aware of the insurance costs of home ownership: "Financial institutions usually insist that the property itself is insured at replacement value — that's the amount it would cost to rebuild the property, if it were destroyed by fire, flood or any other natural disaster."

This is known as homeowners' insurance cover (HOC), and the monthly premiums for this cover are typically debited annually from the buyer's bond account. But paying the premium separately when it falls due each month can save thousands on the final purchase price of a home over its bond term — and buyers should seriously consider setting aside a monthly amount towards this.

Your lender may also insist that you take out life insurance to cover the balance owing on your bond, in the event of death or disability. This is also known as bond insurance, and premiums are generally payable each month.

"And finally," says Coetzee, "it's wise to have short-term insurance that covers you for the loss of any of the contents of your home due to disaster or crime. Along with this, you'll probably want to pay for the services of a reputable security company or make a monthly contribution to a neighbourhood watch."

Clearly, these 'hidden' costs of home ownership can add up to almost as much as your monthly bond repayment, and you may have to rethink your idea of what sort of property you're willing and able to buy.

As a responsible and experienced bond originator, BetterBond guides prospective buyers and encourages them to apply for home loans they can afford, without adding any extra financial strain. And buying a less expensive home is definitely a better decision than losing a more expensive one — along with one's credit rating! — due to a lack of proper budgeting at the start. Seeing the 'bigger picture' upfront could lead to bigger savings down the line!

To start your budgeting process, you can calculate your bond and transfer costs and the amount you need to save for a deposit.