It’s exciting to buy a new home, but it’s also important to carefully consider all the financial implications.
There are once-off costs when you buy a property, but then there’ll be ongoing expenses other than the monthly mortgage repayments.
The purchase price
Several factors determine how much you can afford when you decide on buying a house that you need to finance through a bank.
Your credit rating. The higher your credit score, the better your chance of getting a mortgage with a favourable interest rate.
Your deposit. Banks usually require a 10% deposit, but a substantial down payment will increase your chance of getting a mortgage and it’ll also lower your monthly repayments. You will need to pay this deposit upfront to the estate agent or transferring attorney, who will keep it in a trust account.
Costs to transfer and register a property
Transfer duty is a tax levied on the value of the property, payable to SARS. There is no transfer duty payable on properties below ZAR1m.
Value added tax. The tax status of the seller determines whether VAT is payable instead of transfer duty. For example, the purchase price of a property bought from a property developer would include VAT and not transfer duty. In such a case, SARS issues a transfer duty exemption certificate.
Transfer fees are payable to the transferring attorney who handles the process of transferring the property from the seller to the buyer.
Bond registration fees. When the purchase price (minus the deposit) is financed by a bank, a mortgage bond will be registered over the property in the bank’s favour. The bank appoints an attorney who attends to the bond registration.
The transfer of the property and the bond registration take place simultaneously. All attorney fees are regulated by the Legal Practice Council of South Africa and are payable before registration.
Deeds Office fees are payable for the transfer of the property and the mortgage bond registration to the respective attorneys.
Bank initiation fee. The bank charges this fee for processing your application. It is either a flat rate or based on the size of the loan. Usually, this fee is included in the loan amount, but it can also be paid upfront.
Your monthly expenses as a homeowner
On the registration date of a property at the Deeds Office, all risks pass to the buyer and the buyer is also liable for all expenses relating to the property.
Bond repayments will depend on the size of your loan amount and the duration of the loan, usually 20 or 30 years. The bank will inform you of the minimum monthly payments required. Paying additional amounts into the loan account not only reduces the loan amount faster, but it can substantially reduce the total amount of interest you pay. Also, upon arrangement with the bank, you may be able to withdraw these funds later, for example for home improvements.
Property insurance. Banks require a financed property to be insured for the duration of the loan. The banks usually offer property insurance to clients. But a buyer is free to choose any insurance company and then provide proof of insurance to the bank. This insurance is for the building and is in addition to any home contents insurance you may have.
Municipal rates and taxes, electricity, water and sanitation charges. Your monthly invoice from your municipality will include these charges.
Sectional title levies. A levy for the upkeep of communal properties is usually charged by the body corporate of a townhouse complex.
Garden upkeep, security. If you’ve moved from a townhouse to a freestanding house, or from a rented property to your own home, gardening and security costs will now be for your account and not included in a levy or rental.
Home maintenance. It’s advisable to set aside a fixed amount every month to cover unexpected home maintenance emergencies and long-term maintenance. If you have rented before you bought, plumbing emergencies and other ad hoc repairs are now for your account. To retain the value of your property regular maintenance is advisable.
Now that you have an overview, feel free to contact our conveyancing practice, if you have any further questions.