Can you afford a home loan?

Buying a home is not only a major step towards creating a haven for your family, but also a long-term investment in your financial future, according to Steven Barker, head of home loans at Bravo Finance.

The purchase should therefore be carefully considered and planned for.

“Some homework is necessary before approaching a bank for a loan. Consideration should not only be given to finances, but to the property itself,” said Barker.

Buyers should, for instance, find out more about the area in which the house is situated and the average value of properties in the suburb.

Take time to have the house examined for possible defects such as poor plumbing, potential electrical problems and structural concerns such as rising damp.

In addition, always look at the type of ownership you are considering, such as a freehold (stand alone) house or a sectional title (flat or complex) property.

“It’s important when purchasing a sectional title property that you review and understand the financial standing of the complex before you buy into it,” warned Barker.

“A complex with large outstanding debt and poor management may result in higher levies or special levies, which will cut into your monthly expenses and affect your property value for future sale opportunities.”

He said even if the complex is financially sound and well run, as a home owner, you need to be an active member of the trustee board, as important decisions are made at these meetings that will impact your pocket and property.

Financial planning step-by-step

Once you are satisfied with the location and condition of the property, the financial planning process begins;

Check your credit history as it plays a major part in whether you are suitable for a home loan;

It pays to check your credit rating, ensure that any outstanding debts are settled, and make sure that any accounts you may have are correctly serviced;

Make sure that you have sufficient money to pay a deposit on the house. It is now very rare to get 100% bonds;

Remember the additional costs, which include attorney’s fees, transfer costs and registration fees, which are roughly around 8% of the purchase price of the property;

Also enquire about the rates and taxes that will be payable on the property;

Plan for the one-off costs such as electricity deposits and consider what additions like security are likely to cost;

Check what insuring the property will cost you on a monthly basis;

Although not always required by the bank, you should also look to include a credit life insurance policy to cover the home loan’s outstanding balance;

Plan ahead for your family’s security against disability, retrenchment and death;

Future financial commitments

Interest rates are presently at historic lows. As interest rates usually go through cycles, this position will change and interest rates could rise, according to Barker.

It is important to take this into account when buying a house.

“Plan for the future by making sure that your personal cash flow can cope with increased payments if interest rates should rise,” he said.

“By preparing a personal budget, which allows for costs to increase, you will be ensuring that you avoid finding yourself in financial difficulties at a later date.”

Taking a proactive approach to monthly bond payments when buying a house can also reap future rewards.

“If you buy a house and have the ability to pay extra money on your bond, the benefits can be significant,” said Barker.

“Any additional money paid in is credited against the account and saves on interest costs. These savings can be significant and knock years off your repayment period.”

Additional money paid in also acts as a buffer against future rates increases.

It will have less impact on you as you will already have been paying a higher amount and have a credit to lean on in harder times.

“Taking care of your financial status when your house is acquired, will bear fruit for many years to come,” said Barker.