Navigating the property industry as a first-time home buyer can be nerve-wracking and overwhelming, and the thought of making a mistake with such a large investment can be enormously stressful. In this article, we unpack the most common mistakes made by first-time property buyers and provide advice on how to avoid them.
1. Not understanding your affordability
Before house-hunting, it is important to ensure that you understand what you can reasonably afford in terms of bond repayments, and failure to do so can lead to disappointment when it comes to applying for a home loan. There are loads of online home loan affordability calculators that you can use to get a realistic idea of the financing you would qualify for.
Generally speaking, your home loan repayment cannot be more than 30% of your gross monthly income, or combined gross incomes in the case of a couple, and cannot exceed your net surplus income. Remember, a bond calculator is just a guideline of what you can reasonably afford, and does not include a credit check nor a full affordability assessment which your bank will require.
2. Not having a pre-approved bond
An excellent way of understanding your affordability and placing yourself in a stronger negotiating position is to obtain a pre-approved bond, which you can do either through your own bank or through a bond originator. Home loan pre-approval means going through a pre-qualification process together with a credit score check to calculate the size of the home loan you are likely to qualify for. Once completed, you will be provided with a pre-qualification certificate which you can present to your estate agent as evidence of your serious intention as a buyer.
3. Not using a bond originator
While it is perfectly possible to apply to your bank for a home loan, don’t ignore the considerable benefits of using a bond originator. While your bank’s priority is to get the best deal for the bank, a bond originator’s goal is to get the best deal for you. When making use of a bond originator, they will help you prepare a single application which will then be submitted to a number of banks on your behalf. They will help you fix your credit score, put all the necessary documentation together, obtain pre-qualification, and secure the most favourable interest rate from amongst the banks applied to.
According to Ooba, using a bond originator increases your chances of getting a home loan by 36%, so don’t ignore this option. Remember, you do not need to pay the bond originator anything as they will be paid a commission by whichever bank you choose to implement your home loan through.
4. Not taking a longer-term view of the purchase
The transfer costs and commissions involved in buying and selling property are enormous, so it’s essential to think longer-term when buying your first property. While it’s not always easy to know what the future will hold, give careful thought to how your property needs would change if you were to, for instance, get a pet, get married, have a second vehicle (car, boat, motorbike, caravan, or other craft), or engage in hobbies that require additional space.
Determine whether you will need to rent out space in your new property in order to generate rental income and whether the house can be modified to achieve such an objective. While a lock-up-and-go close to the city centre might be ideal for your needs right now, how different will these needs look one year, two years or even five years from now?
5. Not understanding the size of the property
Especially if you are buying a property off-plan, it is essential to be able to gauge the actual size of the building and of the property as a whole. The artist impressions and brochures presented by developers can be misleading, and it is often difficult to visualise the actual space you will have available to you once the home has been built. If buying off-plan, make sure that you get the full details in terms of the square-meterage of each room so that you know exactly how much home you are buying.
6. Not researching the neighbourhood
Before setting your heart on a particular street or neighbourhood, be sure to do your research. If you first viewed the property on a quiet Sunday afternoon, you may get a one-dimensional view of the area. Ideally, visit the home on at least three occasions at different times of the day and evening so that you get a feel for the neighbourhood in terms of vehicle and foot traffic, traffic congestion, and noise pollution. Do your research into the crime statistics of that suburb, any vagrancy issues that might exist, difficult neighbours that could make living there unpleasant, or busy roads that could make it dangerous if you have pets or young children.
Your estate agent should be able to check on what other property sales have taken place in that area in the past 12 months so that you can do a comparative price analysis. If there has been an unusually large number of sales in that area, ask questions and do further investigation into the high turnover of properties.
7. Making emotional decisions
Buying a home is an extremely emotional decision although it’s important to temper your emotions and excitement with rational thought and decision-making. If you love the home and have your heart set on it, avoid falling into the trap of waiving away your rights simply to secure the deal as this can cost you financially in the long term.
8. Not using a home inspector
While you might be in a rush to put in an offer to purchase, consider hiring the services of an experienced home inspector to ensure that you are not buying a house with hidden defects. A home inspector effectively bridges the trust between the buyer, seller and estate agent, and allows for an independent expert to inspect the property for both latent and patent defects.
Latent defects, which are those defects not obvious to the naked eye, can leave you at huge financial risk, and legal recourse is difficult as you will be required to prove that the seller deliberately hid the defect from you. Most offers to purchase include a ‘voetstoots’ clause which means that the buyer accepts any problems inherent in the home’s structure, whether patent or latent in nature. A home inspector will be able to ask the seller the right questions to determine whether any specific problems, such as damp, leaks, water pressure, or structural damage, exist.
9. Not insisting on building plans
As a buyer, do not assume that the home you intend to buy comes with a valid set of building plans. If there is no specific clause in the offer to purchase insisting on proof of approved plans, the buyer will subsequently have no right to demand plans from the seller. The absence of plans will then constitute a latent defect and would be governed by the ‘voetstoots principle. Remember, if you are applying for a home loan, the lending institution may insist on seeing the approved plans of the property, so it may be in your best interests to build a clause of this nature into the sale agreement.
10. Not understanding the rates and taxes attached to the property
Before putting in your offer to purchase, be sure to find out what you can expect to pay in terms of rates, taxes and other municipal services. Property rates and taxes are calculated with reference to the municipal valuation of the property, which in turn is based on the market value of the property. Each municipality sets its own rates which are dependent on the use of the property and the geographical location, so be sure to ask your estate agent for these numbers.
11. Not setting up an access bond
An access bond, which is a type of home loan that allows borrowers who have paid extra into their bond to withdraw the extra money at a later stage, is extremely useful and can be effective in reducing interest. Any surplus money paid into your home loan will result in you paying interest on a smaller capital amount. You can also save money by depositing your salary into your access bond and transfer sufficient money into your current account to cover your monthly living expenses, whereafter any surplus salary in your access bond will reduce your interest charges. Although you can apply to have your home loan changed into an access facility at a later stage, it is easier to apply for an access facility upfront to avoid unnecessary administration later on.
12. Underestimating the costs of homeownership
Your monthly bond repayments are not the only costs involved in homeownership, and it is important to fully understand all other costs that you will need to budget for as a homeowner. These costs include building and contents insurance, bond cover, cleaning and garden services, rates and taxes, electricity, security, Wifi and other connection services.
13. Not knowing your consumer rights
Don’t fall into the trap of assuming that the Consumer Protection Act affords you blanket protection when it comes to buying property. In reality, this piece of legislation only comes into play if the seller regularly sells property or markets themselves as sellers of property, such as a property development company. Also, be aware of how the 72-hour clause can work to protect your rights if the offer to purchase includes a suspensive condition such as where the sale is subject to bond approval. This clause effectively gives the seller the right to continue marketing the property where the offer is subject to the buyer’s bond approval, while on the other hand the buyer is protected against making a commitment that they cannot meet, such as where they cannot secure financing for the property.
14. Not putting everything in writing
The negotiation process between buyer and seller, with the estate agent acting as an intermediary, can be time-consuming and complex involving numerous offers and counteroffers. During this process, it is easy to forget to reduce all verbal agreements to writing. Ideally, ensure that all phone calls are followed up with an email to all interested parties so that you have documented proof of all discussions.
15. Not reading the fine print
Don’t be put off by the sale agreement. Take time to read through the document to ensure that you fully understand what you are signing and why. Your estate agent should take time to go through the contract with you line by line. Specifically, check whether the seller has included any clauses relating to the fittings and fixtures. As a general rule of thumb, all items that are fixed to the property, such as burglar bars, light fittings and safety gates, are included in the buying price. Moveable items such as curtains, blinds and garden pots are generally not included in the sale. Also, when it comes to occupation rent, ensure that the amount of rent stipulated is fair and in line with what rental for that particular property would fetch in the open market.
Crisna van der Bank • RE/MAX Toti
+27 (0)74 434 1234