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Information for First Time Buyers

Information for First Time Buyers

What an exciting thought… to be buying property for the first time.  Now, let’s help you through this!

 Don’t start this if you have a black mark against your name for bad debt. (You can get this removed when the debt is paid).  Then let’s get going.

 Start with your budget.  If dad’s just given you a whole heap of cash then this is easy.  You know what you have to spend, remember these points.

 ·         Purchasers price of the property, then you must add

·         Transfer Duty (Tax, and varies on every property),

·         Conveyancing Fee (Payment to the lawyers to put property in your name),

·         Sundry Fees, (Deeds Office fees, postage & petties, rates, clearance certificate, share of the rates),

·         Bond Registration Fees (Only if you are borrowing from the bank)

 All the above fees are available on most Conveyancers, Bank and Estate Agent web sites.

 Make sure you have this amount in cash before you start looking. (Try not to borrow this as it puts a strain on your monthly payments.)  This must be paid about a month before transfer to the conveyancers.

While we’re on budget remember now you are a big person about to invest.  There are more bills to pay on a monthly basis.  They are the cost of running the property, electricity, water, municipal rates, insurance on the buildings and maintenance.  Ask a friend or parent what these costs are, then the Estate Agent will tell you the Municipal rates and cost of insurance.

Yay!  We have the boring stuff out the way… Oh no!  What if you’re going to borrow the cash? 

The basics here are you take your gross income per month i.e. before deduction.  Lets say its R21,000 per month.  This can be you and your partners, if you are committed to buying together.  Work out what 33 % of your gross salary is, in this case, R7000.00.

Depending on the interest rate you get from the bank (I’ll work his on 10 % per annum) it costs R1000 per R100,000 you borrow.  Therefore in the above example, you may borrow R700,000.

Sometimes the bank will lend you 100 % of the purchase price, but invariably they will ask for some form of deposit, usually a minimum of 10 % of the purchase price.

Right, so now add your 10 % cash to the R700,000 and we get R770,000.  This excludes your transfer cost we spoke of at the beginning.  Budget done!


Now you know what you can spend, sort out which area you would like to live in.  Think of distance to work.  Are you buying to live in it or just to invest?  How long will you live here?  (Property is a long-term investment)  If you are likely to be transferred around the country buy a property you can let out easily.

 

Start by searching websites and property pages and then select a few properties that catch your eye.  Visit a few properties that are on show – don’t buy the first one you see.  It is important to look in surrounding areas as well as your chosen area.  The neighboring area may just give you better value as it’s not as popular because it’s on top of the shopping center, but it may be quieter. 

 Older properties give you much better value and bigger space but remember they may need work which you have not budgeted for.

Check where these properties are using Google Earth.  Check out who the neighbours and neighbouring suburbs are.  I’ll tell you, it’s also worth having a drive through these areas as well.  Once you have looked at various show days, select an agent who does a lot of work in the area.  You will have seen them at more than one show house during your search, they will also have more properties on their website in the area than others and will have been in the business for at least three years.  The agent will then find you what you want.  If you build a relationship with this agent they will go out of their way to find you a property that will suit you. It really is better to stick with one agent as you can get in a row if you see the property with two different agents.  If you are in a relationship, look together so you get an understanding early of what you both want – it avoids disappointment.

This is it!  We want this one!  Think this through carefully.  Best is to take a first option over the property for 24 hours, during which time you can do the Google Earth thing.  Visit the property and park outside at different times of the day or night. Just listen – the neighbours might be fighters or the cows in the meadow may get up at 4am to be milked.  Chat to folk in the neighbourhood, the domestic staff sitting on the pavement at lunch time will tell you everything.

Do not be put off by the bad.  A lot of this can be fixed.  And people always love the bad stories.  They (particularly relations) are trying to protect your interests so listen and take cognisance of what they have to say, but ultimately it is your decision.

 

Finally, the Agreement of Sale.  Once you have signed it and the seller has accepted it you are bound, unless you cannot get a loan.  When the agreement is signed by the seller you will need a copy for yourself so you know what the deadlines are, and the bank will want a copy when you apply for your loan.

When applying for your loan you can visit each bank separately or you can ask a bond originator to do this for you.  These guys know how to motivate your loan and they are good at getting a good interest rate for you.  Better still, it’s a free service to you.  They are paid by the banks for their service.

The banks will need your latest payslip, bank statements, financials (if you’re self employed), ID document and of course proof of residence.  Once all your documentation has been handed in the bank should you give an answer within 5 working days.  The bank will give you a quotation stating how much the loan is for, how long it is for (usually 20 years) and what interest rate they will be charging you.  Once you have the quotes from all the banks you have submitted to you can choose which one to accept.  By signing their quote you have now accepted the terms of the loan and have now fulfilled the suspensive condition in the sale agreement.  The transaction can now go ahead.

The Agreement of Sale is sent to the conveyancer (lawyer) to transfer the property form the seller to yourself. 

For a few weeks it’ll feel like nothing is happening.  With the excitement of buying and choosing etc, you will now go through a flat period and it is very normal for you to start thinking OH BOY?  WHAT HAVE I DONE? I DON’T WANT IT ANYMORE.  Stay calm!  But of course there will be Mr Doom and Gloom in the corner office telling you that you shouldn’t have bought in that area or some other rubbish.  Take no notice.  You’ll find thy are still renting and are very old!

Remember there are two transactions happening.  Once is registering the loan over the property you have bought (this can be a different group of lawyers) and then the transfer of the property into your name.

 

In about 3 weeks these two different lawyers will make contact with you to sign documents, pay your deposit and your fees to register the loan and to transfer the property.  At this stage you will art to get an idea of when the transfer of the property will take place,  You can now starting giving notice on the accommodation where you are currently living and arranging your moving-in day.  It would be a good idea to make an appointment to relook at the property preferably with the current owners present.  The purpose here is to acquaint yourself with the property again, find out where the water meter and mains tap is, as well as the electricity supply and DB box, what day the rubbish is removed and all the other info you need to live here.

Try not to visit too often as the sellers are also in an emotional state of packing and are sad to leave their home.

The lawyers are hard at work interacting with the local municipality, your bank, the seller’s bank, co-ordinating all the papers to get transfer through.  Believe me, working with all these corporates and municipalities takes time.Your estate agent and lawyer will keep you informed throughout this process letting you know what to do next. 

As transfer takes place you may now occupy the property.  You are now responsible for the property and all the expenses.

Welcome home!

Paying your bond!  Try and pay your first installment on day one of ownership as this starts to save you interest in the long-run.  And by adding a few extra R100 every month to your repayments the duration of your loan is drastically cut. 

Your aim should be to pay the loan off as soon as possible, so you can start on your second property.