First time buyer? If you’re looking for info on starting from scratch, i.e. you have no idea where to start, check out my articles here.
You’re a first time home buyer and you’re in the market for top tips and tricks.
You have done a pre-qualification.
You’re looking for your property.
You want to buy it.
So, you’re in the stage of your life now where you’re actively searching for a property. You want to get a good deal, yet you also want somewhere to call home. With an overwhelming amount of information and things that need to happen, I’ve broken down my tips to the following:
- Emotional connection tips
- Money tips
- Bond tips
On a more technical level, there are a few things to consider – money, investment quality and emotional involvement. In this post I would like to look at emotions and money – a follow-up post will be written on the investment aspect.
Do you need that ‘feeling’?
I think dividing the line between emotional and financial decisions is challenging, and sometimes downright impossible. Most people buy on emotion – they see a car they like and buy it and afterwards justify their actions to themselves.
This is called cognitive dissonance, which is quite normal. I do suggest though that when buying a property that you combine these skills.
You need a connection with the property you’re buying.
As an example, my dad found an awesome property on the slope of the Magaliesberg mountain range – he loved it, but decided to do a final inspection before putting in an offer. It ended up that the house was literally sliding off the mountain – all the cracks were covered up and some of the pillars were actually hanging in the air!
- Check the property out a second time to validate your emotional connection!
- Feel right about the property – don’t buy something you are not comfortable with!
- Don’t rush into anything – dream about it, eat over it, sleep over it, talk it through with friends and family.
Money tips for buying property
The second part involves money – surely you need to pay for your property with a bond or money you have in your back pocket! Here are some general property money tips when buying:
- Negotiate the selling price – what do you have to lose?
- Negotiate things around the house that needs fixing
- Have money available for attorney costs
- Budget for advance levy fees and transferring the rates and taxes accounts
If you need a bond, this section is for you. You would need quite a few things in order.
Calculate how much you can afford
There’s a law that governs that you are only allowed to spend 30% of your gross income on bond repayments per institution – even if you have 50% disposable income, no bank in South Africa will borrow you more than what would cover the above.
I prefer using the affordability calculator for BetterBond here because it’s helpful.
Note there’s quite a few of these calculators, so use the ones you know!
Make sure you have enough money for bond and transfer costs and other fees
Remember there will be fees involved in transferring the property onto your name. And if you need to get a bond, there’s going to be bond costs involved (you can get more info here for a breakdown).
I suggest using the BetterBond calculator for bond/transfer cost calculations here.
Credit score and credit history tips
Warning! Remember that each time you do a credit check, your credit score goes down – so if you plan to do 2 252 credit checks in a week, you might end up ruined!
I know this sounds silly, but make sure you have a credit history / good credit score. Most estate agents will have contacts to do a credit check, or you can get one from Trans Union. They must legally, on your request, supply one free report per year.
There’s hope for you, even if you have a bad credit score!
Most of the people trying to buy a new property have a bad credit score – this could be because of a forgotten bill that didn’t get paid, an outstanding water and electricity account or a blacklisting. According to recent stats I read, 80% can be rehabilitated within 60 days, but most people just give up after discovering their credit score.
What if you have no credit history?
Many people are debt-averse – they avoid making any debt, as this equals slavery in their eyes. Although this is noble, you sort of need proof that you can pay back money after lending it – the bank requires proof! There’s a couple of ways you can build up a credit record:
- Companies like Lucid specialises in building your credit record quickly and efficiently – they charge a fee
- You can open a few store cards and credit cards – I suggest that you buy something you need on the store card, and immediately walk over to the customer service and pay off the debt. In South Africa, this might still work, but in the US this is not valid in their creditworthiness calculations
- Get a credit card through your bank and always have a surplus on it – this does take some discipline, but it’s worth having even R300 on there for in case you would need it – and it builds your credit record.
Should I use bond originators?
Use a bond originator – it’s free! A bond originator submits your bond application to multiple banks – it’s usually free and they give you all the rates from all the banks for you to consider and compare! The bond originator gets kickbacks from the bank, and thus will make sure your application to the bank gets submitted successfully – or will try everything they can to do so.
If you want to get on the property ladder, you need to get your finances in place.
Check your credit score, and fix any arrear debts.
Have money available for the bond and transfer costs.
So, now! Go!