Owning a house: What first-time buyers need to know

Article summary

• Various home loan deals and government programmes have made home ownership an increasingly realistic prospect for first-time home buyers, including millennials and Gen Z.
• Home ownership comes with a number of additional responsibilities and expenses versus renting, and you need to decide whether buying or renting is more suitable for you at this stage in your life.
• Millennials and Gen Z should be seriously considering home ownership as an option, rather than resign themselves to the rent trap.

Home ownership is one of the highest aspirations; whether you seek the financial benefit of owning an appreciating asset, or the emotional benefit of having a space that you can forge in your image.

For many, especially among younger generations, it may seem a faraway dream. But home ownership is a more realistic prospect than you may think, and has become more and more so since the introduction of first-time home buyer-friendly policies like FLISP, and 100% home loans that grant home ownership without requiring a deposit.

Owning a house: Is now the time?

Home ownership does come with some additional costs and responsibilities. It’s up to you to weigh the benefits of homeownership versus renting, and whether you’re at a time in your life where one is more suitable than the other.

We run down the benefits of homeownership versus renting, and what’s involved in the process of purchasing a home.

Home ownership vs renting

Advantages of owning a house:

• You have control. You can perform whatever renovations you wish to increase the home’s value, and you can harness your creativity toward the interior design; allowing you to recreate the space in your own image. You also don’t have to worry about whether the landlord will agree to replace fittings or other things; you can act on your own initiative.
• You own an appreciating asset. Your home is going to grow in value over time. Money paid on rent is sometimes seen as “lost money” because it is not gaining you any benefit in the long-term, whereas paying off a bond is money being put toward a secure future.
• If the value of the property rises, that means the value of your asset is increasing; whereas if the rent increases that means you have to pay more rent.
• A tenancy agreement is not a concern, the house is yours to live in as long as you want.

Disadvantages of owning a house:

• Moving is difficult, versus the flexibility you have with rented apartments. You can’t just up and go, and usually have to sell your home first.
• You are responsible for maintenance costs, levies, utility bills, and other additional costs that come with the homeowning experience, while in a rented apartment you can (usually) expect the landlord to cover such things.
• You’ll need to have building insurance to protect yourself against the cost of home damage, an expense that you don’t have to worry about if you’re renting.
• Purchasing a home requires you to pay a number of costs before transfer can take place, such as transfer duty and bond registration fees.
• Variable interest rates affect your home repayments when they fluctuate, whereas a rental price is fixed for the term of the lease.

So while for many young professionals, who favour flexibility and the lock-up-and-go lifestyle, renting is often the preferred choice, this doesn’t make it the only choice

Why home ownership should be considered as an option, even by millennials and Gen Z

Even if you are of a generation considered more likely to rent, there is the danger of falling into the rent trap; meaning you end up stuck paying rent with homeownership seeming evermore distant a prospect.

So if you’re not completely committed to the rental lifestyle, considering homeownership may be to your benefit, as the earlier you start, the better. It means less money lost to rent and more value gained in an appreciating asset.

Homeownership is made easier for first-time homebuyers by options such as:

• The 100% home loan: The option to get a home loan without having to pay a deposit. This removes a major obstacle for first-time home buyers, as the deposit usually requires around 10-20% of the purchase price to be paid upfront. Banks are currently more likely to grant a 100% home loan as they compete aggressively in the home loans market.
• Government subsidies in the form of FLISP: FLISP (Finance Linked Individual Subsidy Programme) is a government programme that grants a subsidy to first-time homebuyers earning between R3,501 and R 22,000 a month; although it does require you to get a home loan approved. It also requires you to be married, cohabiting, or be single with at least one dependent.

The process of obtaining home ownership

The first step is to get prequalified, so you know your credit score, and what you can realistically afford when you do embark on a house hunt. You can do that with ooba home loans’ free, online prequalification tool, the ooba Bond Indicator.

Once you’ve found the home you want, you and the seller 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. It usually includes a requirement for a home inspection, providing you with an opportunity to uncover any latent defects in the property.

The next step is to apply for a home loan, a very important step in the process as the home loan provides funding for your home purchase. Your credit score will play a significant role in whether or not the bank approves your home loan.

At this point it’s advised to employ the services of a home loan comparison service, such as ooba home loans, who will apply to multiple banks on your behalf, compare the home loan deals on offer, and thereby increase your chances of securing the best home loan deal.

Once your home loan is approved, a number of legal procedures are required that bring with them some additional costs. This includes the transfer of property process, and bond registration process.

As you can see, purchasing a home does require a number of steps that may scare a lot of people into opting for the rent trap. But the reward of owning your own home is well worth the journey required to get you there.

ooba home loans, South Africa’s largest home loan comparison service, can make the process easier with their various calculators, as well as their prequalification service. Start with our bond calculator; then use the ooba Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.