Advising first-time buyers about home financing is a serious business.
This is according to BetterBond Home Loans SA’s CEO, Shaun Rademeyer, who says they realise that the information which many first-time buyers need goes well beyond what their home loan options might offer.
He says they often don’t know, for example, if they have budgeted properly for a home purchase and if they’ll be able to afford their home loan repayments every month.
Others may need to know, he says, how much cash they’ll require to cover the ‘hidden’ costs of a home purchase such as transfer duty and bond registration costs, and yet others may not have allowed for the ongoing costs of homeownership such as municipal property rates, estate levies and maintenance. He says home loan consultants are trained to provide all this information and more, helping to smooth the way to a successful home purchase.
“The main reason we do this is that we want people’s homes to be the foundation of their future wealth, not a financial burden that swallows up too much of their income every month. It is also why we recommend that all buyers, especially those entering the market for the first time, should be prequalified for a home loan before they start looking for their new home.”
Rademeyer says being pre-qualified enables prospective buyers to focus their home search on those properties they know they can comfortably afford, instead of being tempted to stretch themselves financially to buy something too expensive. It also increases the likelihood of their offer to buy being accepted, because the seller is reassured that they are financially capable of buying his property.
He says home buyers calculating the ongoing costs of homeownership should not forget about the premiums for at least two types of insurance that will probably be new to them, the first being homeowners insurance (HOC), which covers the ‘bricks and mortar’ of the home itself at replacement value – that is, the amount it would cost to rebuild should it be completely destroyed by fire or flood.
Most homeowners simply allow the premium for this insurance to be debited to their home loan account, but it is worth noting that paying it separately when it falls due could mean a long-term saving of thousands of rands in interest, he says. In addition, Rademeyer explains that a borrower does not have to buy this insurance from the bank that gives him a home loan, as long as he can prove that he has enough cover.
He says the lending bank may insist that the borrower get bond insurance, which is actually credit life insurance to cover the outstanding amount of the bond in the event that the borrower dies or is permanently disabled, but the borrower is also free to obtain this insurance wherever he likes.
Discover how to build your wealth with property investment Get free training videos & resources on the secrets of property investment in South Africa. Fill out the form below to gain instant access to our training resources.