105% home loans in South Africa: What do they cover?

Article summary

• While the 100% home loan allows you to purchase a house without paying a deposit, the 105% home loan also frees you from paying the burden of transfer and bond registration costs upfront.
• The 105% home loan is aimed at first-time home buyers and intended for properties that cost less than R1.8 million.

In an attempt to boost the first-time home buyers’ market, banks introduced the 100% home loan, where homebuyers could acquire a home loan without having to pay a deposit. Removing the need to pay a portion of the purchase price upfront made home ownership a realistic option for young homebuyers.

Now, some banks have gone one step further, and introduced the 105 percent home loan, aimed at first-time homebuyers looking to buy properties valued at less than R1.8 million. For those who meet these criteria, the 105% home loan not only removes the need for the deposit, but also the need to pay transfer and bond registration fees upfront.

Here’s an overview of what that means for first-time homebuyers:

The benefits of 105 percent home loans

The process of buying a home usually requires the following contributions from the purchaser:

• A deposit (usually 10 to 20% of the purchase price)
• Transfer fees (paid to the transferring attorney, whose job is to transfer ownership of the property from the seller to the buyer)
• Transfer duty (a tax on the transfer fees which you pay to SARS, although this only applies to properties with a purchase price above R1 000,000)
• Bond registration fees (paid to the bond attorney, whose role is to register the bond in your name once it has been approved by the bank)

These extra charges can add up to a significant amount, taking the homebuyer off guard as many expect only to have to deal with the deposit, being unfamiliar with all these additional costs.

Transfer and bond registration fees: How much will they cost me?

The fees are dependent on the purchase price of the property itself, but homebuyers are advised to set aside 8 to 10 percent of the purchase price for these fees.

Thankfully the 105% home loan removes the need to pay these fees upfront, by incorporating the transfer and bond registration costs into the loan.

How much do I save?

To get an idea of what your bond registration and transfer costs would amount to, use the ooba Home Loans transfer cost calculator. For example, for a property purchased for R1,100 000, with a bond of R1 100 000, the bond registration costs would be R30, 698 (incl VAT) and the transfer costs would be R27,660, adding up to a total of R58,358 (incl VAT).

Such a financial burden can be alleviated by the 105 percent loan. It’s understandable why it would be an attractive option to first time home buyers, who usually have less cash to spend upfront.

How do I qualify for a 105% home loan?

The loan is aimed at first time buyers, and there are some criteria that need to be met. These could include:

• Maximum Purchase price between R1 500 000 and R1 800 00, depending on the bank granting the loan
• Very good credit score
• Ability to afford the installment on the 105% home loan when interest rates start increasing

Should I get a 105% home loan?

The 105% home loan reduces short-term costs and allows you to get on the property ladder sooner. It makes home ownership a reality for young homebuyers who might otherwise have risked being caught in a rent trap.

But, of course, with the deposit, transfer and bond registration costs all incorporated into the loan, this means higher monthly bond repayments, more interest paid over the term of the loan, and possibly a higher interest rate on the loan.

Either way, now is one of the best times to apply for a 105% home loan, with cheaper house prices, and interest rates at the lowest level last seen 50 years ago.

Getting prequalified with a home loan comparison service such as ooba Home Loans can help you make the decision, as it provides you with information on the deposit, while home loan calculators such as the transfer cost calculator determine the likely transfer and bond registration costs. Together they’ll help you determine whether the 105% home loan is worth it for you.

Use the bond calculator first, then use ooba Home Loans’ free, online tool, the Bond Indicator, to get prequalified. Finally, when you’ve made your decision, you can apply for a home loan.