Congratulations, you’ve finally put away the 10% or 20% deposit required to purchase your first home. All those months of being frugal have finally paid off; staying in instead of nights out with friends, packing your own lunch and enjoying the cheap office coffee instead of going across the office for that delicious yet expensive Espresso. It was no easy task, but you did it!
Before you put in the offer, read the following hidden costs that normally shock a first time home buyer. Take them into consideration and perhaps save a little more so that purchasing your first property is not one big regret.
Transfer costs and conveyancing fees
When purchasing property, one is liable for transfer duty and lawyers’ fees. However, when you buy property directly from a developer, no transfer tax is liable. Transfer duty is levied on property that cost more than R750 000; this means that if you buy property that costs less than R750 000, you will not pay any transfer duty. For properties above the R750 000, the tax is levied on a sliding scale like below:
VALUE OF PROPERTY
(Rand)RATE 0 – 750 000 0%750 001 – 1 250 0003% on the value above 750 0001 250 001 – 1 750 00015 000 + 6% of the value above 1 250 0001 750 001 – 2 250 00045 000 + 8% of the amount above 1 750 0002 250 001 – 10 000 00085 000 + 11% of the amount above 2 250 00010 000 001 and above937 500 +13% of the value exceeding R10 000 000
Table: SARS, 2016
Interest rate hikes
When purchasing your home, most banks will offer you either a fixed or a floating interest home loan. A fixed interest home loan does not change, it stays the same throughout the loan period; for most homebuyers, this adds certainty to their monthly bond repayments. A floating interest rate is determined by the Repo Rate, which is currently unchanged at 7% (as at 22/07/2016). If the Repo Rate either increases or decreases, this affects the Prime Rate (10.5% as at 22/07/2016), which is the rate at which banks lend to you. Depending on your credit score, banks will lend to you at Prime + 3%, this translates into an interest rate of 13.5%! So one needs to look into adjusting their budget anytime the Prime Rate increase.
Rates and taxes
Depending on the type and value of property, the rates and taxes can potentially strain your budget if these costs are not well thought out and planned for. If you are purchasing a freestanding house, this is the charge that will go to your municipality for services such as refuse collection, sewerage facilities etc. If you are purchasing a sectional title property (property in a complex), you will pay levies to the body corporate for running the complex.
Moving costs
All the excitement might make you forget that you will need to hire a professional moving company, which can be anything from R 1,000 all the way to R 50,000 depending on the amount of furniture and distance involved. Alternately you can DIY, which also has cost implications e.g. packing materials (such as boxes, bubble wrap and tape), petrol for your mates car for all the numerous return trips.
Finally, moving in costs
Moving in costs are the most underestimated, some may seem small and insignificant but they all add up. You realise you need a new couch, new curtains etc. all of which can put you under financial strain if you didn’t plan well in advance for.
Take the above costs into consideration when you are thinking of purchasing your home. Perhaps it’s time to stash more money away to make the transition a lot easier and of course a happy one.
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