First-time home buyers: Here’s everything you should know

Article summary

• First, determine what you can afford by getting prequalified.
• When you’re ready to make an offer, sign the Offer to Purchase with the seller, and apply for a home loan.
• Your credit record, the property value, and the size of your deposit, determines the amount you qualify for, your chances of receiving home loan approval, and the interest rate you are offered.

Owning your own home opens up a world of possibilities, and it need not be a distant dream. As more people look to take their first step onto the property ladder, more banks are gearing their home loan packages toward the needs of first-time home buyers.

What you need to know as a first-time home buyer

First-time home buyers are less likely to be familiar with the home-buying process, and as such, can benefit the most from expert guidance. Here’s what you need to know.

1. What can you afford?

Of course, this is the first issue to consider, before you even begin the house hunt.

To this end, it’s recommended you get prequalified. At ooba Home Loans,. South Africa’ largest home loan comparison service, we provide a free, online prequalification service in the form of our Bond Indicator. This can help you determine what you can afford.

Armed with this information, you will be able to commence your house hunt with confidence.

2. The importance of your credit score

Your credit score is a three-digit number between 000 and 999, calculated by the credit bureau based on your financial history (your debts, income etc ).

The bank checks your credit score when you apply for a home loan. The higher your credit score, the better your chance of the bank granting you the loan.

Anything above 600 is considered a good credit score. 670+ is considered excellent.

When you get prequalified with ooba Home Loans, we provide you with your credit score. This is important information to have before commencing your house hunt, as you’ll have time to improve your credit score if it’s too low (we can advise you on how to clear your credit record).

3. Making the Offer to Purchase

Once you’ve found your dream home, the first step to acquiring it is to sign the Offer to Purchase, an agreement between you and the home seller that stipulates the conditions which need to be met before the home sale can commence.

Here’s where it can be helpful to have an estate agent or attorney look over the agreement with you to ensure you haven’t missed anything important.

You’ll want to make sure the agreement includes an obligation on the part of the seller to conduct a home inspection, and inform the buyer of any defects.

Important to know: The 72-hour clause
The Offer to Purchase may include something known as the 72-hour clause, which entitles the seller to the following:

• They can continue to market the property, even after accepting an offer to purchase from an interested buyer.
• If they receive a better offer, they can activate the clause, which gives the original buyer 72 hours to fulfill the conditions of the Offer to Purchase, else the agreement will be rendered null and void, freeing the seller to sign a deal with the new buyer.

4. The deposit

In most cases, you’ll need to make a down payment on the property.

This will usually be 10-20% of the total purchase price, though you can choose to make it higher. The higher your deposit, the better your chance of the bank approving a loan for the remainder of the purchase price, and the lower your interest rates on that loan will be.

The 100% home loan: An option for first-time home buyers
For many first time buyers, gathering the funds for a deposit may be difficult. Thankfully, many banks are catering to first-time home buyers by offering the 100% home loan. As the name suggests, this is a loan completely funded by the bank, removing the need for a deposit.

5. The home loan

For many home buyers, the purchase will be funded by a loan from the bank, known as a home loan. Applying to a bank for a home loan is probably the most important part of the process.

You can improve your chances of getting the home loan approved by applying with the help of a home loan comparison service, such as ooba Home Loans. We can submit your application to multiple banks on your behalf.

Different banks have different lending criteria; some may be more likely to approve your home loan than others, and some may offer you better interest rates than others.

We enable you to compare the packages offered by all the major banks, and choose the best one for you.

What will your monthly repayment on the home loan be?
Our Bond Repayment Calculator can provide an estimation of what the monthly repayment amount will be.

Of course, it cannot predict what interest rate the bank will grant you, but the prime interest rate serves as a solid base when calculating your monthly bond repayment.

6. Your home loan is approved, what next?

Home loan approval is a big weight off your shoulders, since you now know that you can fund the home purchase. However, it’s not the end of the home-buying process. A number of legal procedures are still required, such as:

• Bond registration: The bank will appoint a bond attorney to register the bond in the purchaser’s name. The purchaser will have to sign documents and pay the bond attorney’s fee.
• Bond transfer: The seller appoints a conveyancing attorney to transfer the property from their ownership to the buyer’s. The buyer will have to pay the transfer fees, as well as transfer duty, which is a tax paid to SARS (although this is only payable on properties worth more than R1 000 000).

You can determine what your bond registration and transfer costs will be using our Transfer Cost Calculator.

The bond registration and transfer process usually takes around 3 months from the approval of the home loan. Once it is complete, the title deed to the property will have been lodged in your name, although it will remain in the possession of the bank until you have paid off the home loan.

Take your first step toward home ownership

Prequalification and home loan application; two essential steps to home ownership. As mentioned, we can prequalify you, and assist in your home loan application.

We also offer a range of insurance packages, including buildings insurance, which is required by banks before they will grant a home loan.

And we host a range of tools that make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.