Buying a home a costly undertaking, understanding the transaction and getting it right the first time is very important.
Calculate affordability of payments. Decide on and draw up requirements carefully. It could include, size of home, will room sizes accommodate family and furniture, bus routes, shops or schools in the area, high or low maintenance home.
Provide for additional fees, conveyance fees for the transfer of the property and if a bond loan is required, bond registration fees. This is payable to the conveyancer.
Read local newspaper advertisements, inspect properties, discuss requirements with local Estate Agencies and view listed properties.
Understand all the clauses in the agreement and be 100% sure of the buy before signature on an agreement. Penalties are incurred if accepted agreements are not fulfilled.
Estate Agents are professionals who arrange property transactions. They should have a good understanding of availability and pricing of property in the area.
Use Estate Agencies and agents registered with The Estate Agency Affairs Board, a governing body overseeing property transactions in South Africa. By dealing with registered Agents risk are minimized when buying a home. The Estate Agents Affairs Board protect consumers and will assist with problems.
An owner is responsible for the property, to maintain it, to pay rates and taxes or levies in the case of sectional title property e.g.. flats. A maintained property kept in good condition should grow in value. A neglected property deteriorates, the value declining and ensuring losses.
After purchase the property is transferred and registered in the buyers name who becomes the lawful owner.
Buying a house and obtaining a loan are separate issues.
A loan to fund the buy is simply that, a loan. Ownership is not gained by a bank when a loan is granted, only certain legal rights over the property until the loan is paid off, the property being security for the loan.
Make certain of your choice of property, unsuitable property cannot simply be returned to a bank. The bank did not sell the property they simply financed the purchase. Liabilities for a loan only end when a loan is paid off.
Investors and savers deposit funds at banks and earn interest. Banks lend these deposits to people in need of loans. Interest is charged on loans. The difference between the interest paid to the investor/ savers and interest received on loans is a bank’s income. Banking costs, (salaries, administration, rent etc) deducted from this income gives the bank profit. The margin between interest paid and interest received is not high and banks need to ensure that loan payments are made correctly and timely.
If payments on loans granted, are not made, interest cannot be paid to the investors/savers.
Buyers are responsible for the transaction when buying a home, obtaining a loan, signing contracts and to perform to the accepted conditions in the contract. Transactions must be understood before signature and acceptance of any contract. The written agreement contains all the conditions of the agreement.
Affordability means having funds to finance the buy or surplus monthly funds to pay off a loan. The size of a loan is based on monthly payments that clients can afford.
A property owner incurs additional expenses that should be taken into account, house (rates & taxes), flats (levies) and for maintenance of the property.
| Income | Amount |
Expenses |
Amount |
| Monthly Salary |
5000 |
Groceries |
600 |
| Minus Salary Deductions |
1600 |
Clothing |
200 |
| Net Salary |
3400 |
Schooling |
200 |
| Minus Monthly Expenses |
1800 |
Transport/Fuel |
300 |
| Income after Expenses |
1600 |
Accounts |
300 |
| Entertainment |
200 |
||
| Minus Additional Expenses |
500 |
Monthly Expenditure |
1800 |
| Future Purchased Property Expenditure |
|||
| Rates & Taxes |
300 |
||
| Maintenance |
200 |
||
| Net Surplus |
1100 |
Total Additional Expenditure |
500 |
a Surplus of R 1100.00 per month is available for home loan payments. a Home loan will be based on this surplus.
Do not lend more than you can afford, you will incur financial hardship because of unaffordable monthly payments. Take all expenses into account when working out net surplus
The agreement to purchase immovable property (houses, flats) must be in writing. All conditions and requirements of the buyer must be noted on this written agreement. This written agreement must be signed by the buyer and submitted to the seller. The seller must confirm acceptance by signature. On acceptance the sale becomes binding and legal. The property is purchased according to conditions in the written agreement. Be careful.
If the purchase price is not readily available the buyer must arranged a loan. If cash, the amount is deposited with the Estate Agency or the attorney attending to the transaction. The funds would be placed in a trust account until day of transfer. Never pay the seller directly. The purchase price is only paid over to the seller when the property is transferred and registered in the buyer’s name in the Deeds Office.
Estate Agents, Bond Originators and Banks will assist in obtaining a loan.
An application for a loan must be completed fully, honestly and signed by the purchaser. This application, with other relevant documentation required by the bank e.g. id document, salary statement etc are forwarded to the bank for consideration.
Monthly income, expenses and surpluses, deposits or guarantees (additional security)
Condition of property
A home loan payment should not exceed 25% of monthly income.
Banks approve and grant loans with certain conditions, one being that the property be security for the loan. A bond, setting out the written conditions, accepted by signature of the buyer, will be registered over the property in favor of the bank.
Banks consider loan applications taking into account information that is submitted in loan applications. All expenses must be stated otherwise unaffordable monthly payments will cause financial hardship.
Capital and interest
House owners insurance
Life assurance
Administration fee
Is the amount required to pay off a loan over a period at a certain interest rate. Capital being the portion over and above the interest charged. The interest percentage may be negotiated with a bank and usually is set at prime rate.
Interest rates fluctuate. Payments will vary according to interest rates change.
Example: a Loan of R 100,000.00 with an Interest Rate of 12 % per year over a Term of 30 years will have a monthly Payment of R 1028.61. The interest portion on R 100,000 @ 12% is R 1000.00 per month. Very little capital is paid off initially.
On a loan of R 100,000 at 12% interest per year over a term of 20 years, compared to 30 years, monthly capital & interest is R 1101.09.
Paying R 1101.09 (R 72.48 more) per month on the above loan would result in paying off the loan over 20 years and saving R 123433.20.
The higher the amount paid over and above the monthly payment, the quicker the loan is paid off and thousands are saved. Interest is calculated on the balance of the loan. There is no better and safer investment.
Covers damage and loss as noted in the insurance contract and caused by ("Acts of God") storm damage, lightning, floods, etc. Monthly premiums will be calculated on the replacement value of fixed improvements on the property. House owners insurance do not cover maintenance, that is the owners responsibility. Include Sasria cover as this additionaly covers riots etc.
Pays off the loan in the event of death or disability. Not having life and disability cover may cause undue financial hardship for the family in the event of disability or passing away.
Premiums are based on the amount of life cover, health, age of the applicant and the portion that is allocated to the savings element of a policy. The older the applicant the higher the risk and the premium of life and disability cover.
Minimize monthly premiums by specifying maximum life and disability cover and minimum savings.
Decreasing life assurance where the cover decreases over time as the loan decreases is another less expensive option.
A policy with substantial life and disability cover should never be amended or cancelled, new policy premiums will be calculated on present age and be higher. Rather take out a new policy and keep in mind disability cover.
a Suggestion: Your first life assurance policy should have the most life and disability cover, with minimum savings, that you readily can afford. This policy may be ceded to the financial institution when obtaining a loan. Change beneficiaries on your policy as your circumstances change, marriage, etc.
Written instructions as how your assets will be distributed on your passing. have a will drawn up and updated as your circumstances change.
a Fee charged monthly by banks.
The building agreement is between the builder and the client. The house will be built according to the plan and what is noted in the agreement. (Check room sizes.) The client should check and supervise the building operation constantly. A bank loan for the building operation does not make a bank party to the building agreement.
The building loan differs from the home loan only in that the loan is not paid out in whole to the seller on date of transfer but in increments to the builder as the construction of the house progress.
As building progress the builder will forward, to the bank, authorization by the client to make progress payments. On receipt of this authorization, a building inspector instructed by the bank will inspect the building progress according to the plan and quotation as agreed to between the builder and purchaser.
The Inspector will confirm the stage of building progress and if work has been done in accordance to the agreement, plan and local building ordinances. On positive confirmation, payment to the builder will be made by the bank, always retaining an amount (retention) in order that the building could be finalized.
Primarily the inspections are done to safeguard the banks interest regarding the loan. As owner of the building you must still check the building operation.
On every payment to a builder out of the loan account, interest is levied. Every month interest is charged on the balance of the loan. This means that the amount available to the builder becomes less as time goes by.
If problems occur between a builder and client and building operations cease, there will not be sufficient funds available to complete the house. The client will have a incomplete house and be liable for any balance on the loan.
Start payments promptly on the loan. One month’s arrears could mean paying thousands more.
The builder should be registered with the National Home builders Regional Council (NHBRC). The government formed this body in order to safeguard interests of clients. They could act against builders and guarantee the dwelling built.
"Voetstoots" clause included in all Sale agreements mean that the property is purchased “as is”, what you see is what you get. Inspect the property carefully and if repairs or renovation is required record the details in the contract.
Cooling off period clauses must be included in agreements to purchase up to R 250,000.00. The purchaser, may cancel the agreement in writing within a period of five working days without incurring any penalty.
Stands are set out by the local town council and proclaimed as such. Each stand in South Africa is noted by plan and a Title Deed in the Deeds office.
The Deeds Office keeps a record, a copy of the Title Deed, of all fixed properties in South Africa.
The Title Deed is a legal document lodged and recorded at the Deeds Office, that describes the property, property restrictions, mortgage loans against the property and records the owner of the property.
The bond is a legal written contract, drawn up by a conveyancer, between the bank and the lender (buyer) of the property, that outlines the conditions of the loan. This contract is registered at the Deeds Office and endorsed on the Title Deed of the property.
Conveyancers are specially trained attorneys who exclusively arrange transfers of property in the Deeds office.
On registration of the transfer and bond, the buyer becomes legal owner of the property and the loan is paid out to the seller. The bank obtains certain legal rights in the property as stipulated in the bond registered. These rights will include that when sold the loan be paid off, inspection rights and that the property is properly maintained by the owner.
Missing a monthly payment means that the loan balance increase with monthly interest and the loan term lengthen. The initial payment calculated on the loan is immediately insufficient. Arrears cause additional administration costs for banks e.g. letters, telephone calls, Attorney fees etc, and the interest rate could be increased by the bank.
Normal bank practice is to contact a defaulting client when arrears occur and explore ways to remedy the situation. If arrears persist legal action is taken and judgment obtained by court decree. The property is attached by the sheriff of the court and sold on public auction. The property changes ownership and the defaulter must vacate the property. The defaulter is still liable to pay of the debt, being the difference between the loan balance on date of auction plus legal costs and the proceeds of the sale. Other assets of the client could further be attached and sold on auction.
Instructions handed down by the court that reaffirms the legal liability of a debtor towards debt. Creditors may attach assets and have it sold on public auction in order to pay off debt. Attachments could be imposed at any time and until the debt is paid off e.g.
a Judgment is obtained on an account with a balance of R 1000.00. Two years later a client’s financial situation has improved with assets being a house and furniture. The judgment means that the assets recently obtained, furniture and house could be attached and sold on auction to pay of the debt.
Ever increasing loans and debt
Adverse credit history
Legal action by banks that lead to judgments and the property sold on public auction
Legal cost are payable by the defaulter.
Salaries may be attached by legal action in order to pay debts.
Credit history is negative
Credit and further loans will not be obtainable
Judgment for debt causes hardship
The only recourse is to pay off debt. Applying for debt review or an administration order by legal means is a short term solution with long term implications. This action is costly and the fee payable by you. Your assets could still be sold on auction and no credit will further be available. Instead of alleviating your cash flow problem you could end up with no assets, a bad credit record and years of paying debt that would still attract interest.
Do not fall in a debt trap. Obtain credit and loans with care and be committed to monthly payments. Buying a home must improve living conditions and not cause financial hardship. Financial well-being means personal, family well-being and improved living conditions.
The NCA is good legislation protecting the consumer. It requires financial institutions to be transparent with their services and to inform consumers regarding all aspects of services offered. Non compliance to this legislation could mean substantial penalties for the financial institution even forfeiting a loan granted. As a consumer you have rights, use them.
Should a bank be unable to sort out any problem you can contact the Bank Ombudsman for assistance. Every time a query is lodged with them the bank pays a penalty and queries are sorted very quickly.