You need a 'big picture' budget for home ownership

How much the bank will lend you is not the only thing to consider when you're applying for a home loan. As a homebuyer, says Rudi Botha, CEO of BetterBond, you also need to budget for the ongoing costs of property ownership. You also need to ensure that you'll be able to afford these as well as your monthly bond repayment.

"For example, once you take occupation of the property, you'll be liable to pay for services like water and electricity. Once the property is in your name, you'll also have to pay municipal rates.

"Failure to pay these amounts could lead to legal action and even to selling the property to clear the debt. So before you commit to a property purchase, find out what the seller has been paying for municipal services and rates for the past year. You need to build this cost into your monthly budget."

In addition, he says, you should budget a monthly amount to maintain your home and garden if you have one. "Many people don't know this but keeping the property in a reasonable state of repair is actually a condition of most home loan agreements. And in any case, the long-term financial consequences of neglect are usually greater than the costs of regular maintenance."

There can also be substantial insurance costs that come with home ownership, notes Botha. "Financial institutions usually insist, for example, that you insure the property at replacement value. This is the amount it would cost to rebuild the house as a result of fire, flood or other disasters.

"This is known as homeowners' insurance (HOC) and most buyers just debit the premium annually to their bond account. However, paying the premium separately when it falls due can save thousands on the eventual purchase price of a home. Buyers should also consider setting aside a monthly amount towards this."

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

"And finally, it is advisable as a homeowner to have short-term insurance that covers you for the loss of any of the contents of your home due to disaster or crime. Many people also elect to pay monthly for the services of a security company or make a monthly contribution to a neighbourhood watch programme."

Taken all together, these additional costs of home ownership can amount to almost as much as your monthly bond repayment, says Botha, and may in fact mean that you have to revise your ideas about what sort of property to buy.

"However, as a responsible originator, we strongly believe in prospective buyers applying for loans that they will be able to afford without financial strain. Buying a less expensive home is certainly a lot less difficult than losing a more expensive one – as well as one's credit rating – for the lack of proper budgeting at the time of purchase."