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

Article summary

• Experts predict a burgeoning market for first-time buyers thanks to low house prices, increased competition between banks, and potential interest rate cuts.
• 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 determine 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 can benefit the most from expert guidance. Here’s what you need to know.

1. Know the market

Despite the difficult economy and rising inflation, experts predict an improving market for first-time homebuyers.

This is a combination of low house prices, competitive bank interest rates, and impending rate cuts.

In the first quarter of 2024, first-time homebuyers accounted for 46% of ooba Home Loans’ customer intake.

More on interest rates

The South African Reserve Bank initiated a number of interest rate hikes over the past few years to combat inflation, but experts predict that the trend is coming to an end.

This prediction was borne out in September 2023 when the SARB opted to leave interest rates unchanged from the May 2023 rate of 11.75%

Experts posit that interest rate cuts may be on the table for late 2024.

Increased competition between banks

This situation improves the chances of home loan approval, and of securing special home loan deals such as the 100% home loan (more on that below).

2. 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.

3. 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 610 is considered a good credit score. 670+ is considered excellent.

Here’s more detail:

• 781 to 850. Excellent.
• 661 to 780. Good.
• 610 to 660. Fair.
• 500 to 610. Poor.
• 300 to 499. Very poor.

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.

If your credit score isn’t high enough, you can take measures to improve your credit score before applying.

Some measures you can take:

• Check credit reports for errors.
• Pay outstanding debts.
• Reduce credit ratio to below 30%.
• Settle and close accounts.
• Limit requests for new credit.
• Encourage your spouse to take the same measures.

Improvements to the credit score usually show up in about three months, but if you applied already and was rejected, you might have to wait six months before reapplying

4. 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 fulfil the conditions of the Offer to Purchase. Otherwise, the agreement will be rendered null and void, freeing the seller to sign a deal with the new buyer.

5. 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 100% home loans. As the name suggests, this is a loan completely funded by the bank, removing the need for a deposit.

6. 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 a 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 the monthly repayment amount.

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.

7. 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 and 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 bank’s possession until you have paid off the home loan.

Take your first step toward home ownership

Prequalification and home loan application are 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 building insurance, which banks require before they will grant a home loan.

And we host a range of tools that make the homebuying 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.