- The first step is to ensure you know what you can afford, and the kind of home you wish to purchase.
- Once you have your requirements in mind, you can begin the house hunt. You can use an estate agent to make the search easier.
- Then, once you’ve found your dream home, you’ll need to come to an agreement with the seller by signing an offer to purchase, and you’ll need to get access to finance from a lender (usually a bank) by applying for a home loan.
As one of the most significant investments you’ll ever make, it should come as no surprise that purchasing a home is an extensive process. But while it may seem daunting at first, it’s not like you’ll be wandering uncharted territory. The path is well signposted, and there are expert advisors who can help you along the way.
If you’re unsure where to begin, here’s a handy step-by-step guide to buying a house in South Africa, so you can approach one of the most important decisions you’ll make with clarity and focus:
Step 1 – Determine what you can afford
Before you start your house search, you should have a very clear idea of what financing is available to you for the transaction. “Rough estimates of what you think you can afford just aren’t good enough in these days of stricter lending policies from financial institutions,” says Rhys Dyer, CEO of ooba home loans, South Africa’s leading home loan comparison service.
A good starting point would be to use a bond affordability tool, such as ooba’s Bond Indicator, which is a free, online tool. This will provide you with your credit score, a summary of your affordability, and a realistic indication of your price ceiling.
This will be an invaluable guideline during your house hunt, and furthermore, the Bond Indicator will issue you with an ooba Bond Indicator Certificate that you can submit when applying for a home loan (more on that later). Another way to gain prequalification is to get yourself verified by an expert.
Step 2 – Assess your credit record
As far as your bank is concerned, your credit score is a big number above your head that tells them how much of a risk you are. Your credit score indicates to your bank whether your past debt repayment behaviour will make you a good risk or not. Through various calculations based on your transactional records, the credit bureau will provide your bank with a three-digit number ranging between 0 and 999. Naturally, the higher the better, and a high credit score rating is one of the most valuable personal finance assets you can have.
The aforementioned Bond Indicator, as well as being able to determine your affordability, can also provide an estimate of your credit score. You’ll want to obtain this information before embarking on the home-buying process.
In the meantime, ensure you pay your bills on time, and don’t borrow more than you can afford; two of the most effective measures for securing a clear credit record.
Step 3 – Find a real estate agent
While it’s commonly assumed that estate agents work solely for sellers, they are in fact a great asset to house buyers too. “It’s true that anyone can look for a home, and even get a peek inside, without the help of an estate agent but, unless you have the time to make house shopping a full-time job, chances are an agent will be able to match you with your perfect property considerably faster,” says Rhys Dyer.
Find an estate agent you can develop a good working relationship with (consider asking friends and relatives for recommendations). Their knowledge of the housing market, and their ability to handle paperwork and deal with sellers on your behalf, will make for a much smoother process. Furthermore, their services are free, as their commission is paid by the seller.
Step 4 – Find your ideal home
Now the part people generally enjoy most about the home-buying process, the house hunt itself. Of course, this is also the most difficult part of the process, as this will all be for naught if you don’t find a home that meets your requirements.
Of course, the first step is having a clear idea of what exactly those requirements are before embarking on a house hunt. Give some thought to:
- Where you want to live.
- Whether it’s important to be close to a school, medical facility, supermarket and shops, and other useful amenities.
- The desired size of the home and whether a garden is a necessity.
- Whether you want to live in a gated community.
- Whether it’s important to be in a quiet neighbourhood.
Once you have a clear idea of what you want, you can begin the house hunt. Useful house hunting tips include scheduling house viewings for weekdays (so as to avoid the weekend rush), taking your own photos (rather than relying on agent’s photos, which are intended for marketing purposes), and coordinating your viewings so as to ensure they take place within a short window of time (otherwise there’s a risk of houses you view being sold before you’ve made your final decision).
Step 5 – Sign an offer to purchase
Once you’ve found your dream home, and got all your finances in order, you’re ready to sign an offer to purchase. This is an agreement between you and the seller that stipulates the terms and conditions for the sale of the property.
Bear in mind that, as Rhys Dyer explains, “far from being simply an agreement, an offer to purchase is a binding contract; once you make an offer, you cannot easily change it”. It’s important to have a full understanding of what the agreement entails before signing it. Also bear in mind that the seller is legally obligated to disclose any known defects in the building.
Step 6 – Arrange a home inspection
The offer to purchase should include a requirement for a home inspection. This is your opportunity to discover any latent defects in the property, and it’s important to be aware of what your rights are when it comes to this issue. Sellers are liable for all latent defects in their property for three years after the defects have been discovered.
The seller will also receive a copy of the report, and it’s up to you whether to request that necessary repairs be made.
Step 7 – Apply for a home loan
Once you and the seller have come to an agreement, the next step is acquiring a home loan to fund your purchase. A home is a significant investment, hence why banks have a system in place to help people acquire them within their affordability range, without having to file for bankruptcy afterward.
How to get the best interest rates on your home loan
You can apply to your bank for a home loan directly, or acquire the services of a home loan comparison service like ooba home loans. The latter is especially useful, because the home loan comparison service (or bond originator, as they’re sometimes called) will send your application to multiple banks in order to secure you the best deal. Like the estate agent, bond originators come at no cost to the buyer. They receive a fee from the bank.
The less of a risk the bank determines you to be, the more favourable your interest rate. Factors that affect this include your credit record, and the size of your deposit. “While a deposit is not always required, try to put down 20% or more if you can, as the bank is more likely to offer you a better rate as the risk of the loan is reduced,” suggests Rhys Dyer.
Can you get a home loan without having to pay a deposit?
A zero deposit home loan is indeed possible, and in fact, “more than half of all the applications received by ooba home loans are from buyers who have no access to a deposit” according to Rhys Dyer, with three out of four of these applications being successful.
What if your home loan application is rejected
If you initially fail to secure bond approval, don’t lose heart. You can still get a home loan if the bank declined your initial application, as ooba home loans has been successful in securing home loan financing for almost two in every three applications that are initially turned down by a bank.
Step 8 – Close the deal
So you’ve got your offer to purchase and your home loan secured…what’s left to do after your bond is approved? The process is handed over to attorneys, who will handle the transfer of property from the seller to you and the registration of the bond over your property.
The attorney will draw up documents for the purchaser to sign, and send those documents to the Deeds Office, which will examine and approve the documents, normally within 8 to 10 working days. Bear in mind you will have to pay a transfer duty to the South African Revenue Services (SARS).
All in all, Rhys Dyer estimates 69 working days for your bond to go from ‘granted’ to ‘registered’, and attorneys will be on-hand to guide you every step of the way. In the meantime, you should start putting some money aside for your first bond repayment, as well as any home renovations you’re hoping to undertake.
Once it’s all done, time to move in and enjoy your new home.
To make the home buying process that much easier, consider employing the services of a home loan comparison service like ooba home loans, who among other services, offer a range of home loan calculators that can help you determine exactly what you can afford. Start with ooba home loans’ free, online prequalification tool, the ooba Bond Indicator. Then, once you’ve found a home that meets your requirements, you can apply for a home loan.