House purchase, determine affordability/budget?

vorman

vorman

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So I think I'm at a stage where I should start looking for a house/flat. Bear with me as I'm someone just starting out (<5 years in the working world).
Question is, how do you determine your budget for a purchase this large? For eg, for vehicles some people will say rough estimate of 20%/25% of your nett income. Is there something similar for property purchases? I know my monthly budgets and I know what I've got to spare at the end of the month. Taking existing rent into consideration, I therefore know what i can afford to pay monthly. So I need to sort of calculate backwards to get a purchase price lol. Can this be regarded as an accurate representation of price ranges I should be looking at?

Also, what down payment should you aim for? A percentage of the purchase price?

Many thanks
 
Always set your budget to lower than what affordability calculators suggest. So, let's say that your current rent is R8000 and you have R4000 left over every month. I would not go for a loan repayment for R12000. R10000 might be okay, as long as that figure includes things like rates and levies.

So, I'd calculate your maximum and then subtract a good 10 to 15% from that. The last thing you want is to overburden yourself.

As for down payment - the more the better obviously. At some point you have to buy. So save as much as you can, and when you find the right place, purchase. Having a higher deposit will also help you meet some hurdles. These days, banks might not loan the full amount to someone who has never purchased a property before.

I'd aim for a minimum of a 5% downpayment.

EDIT: Remember to factor in transfer costs and bond registration costs into your calculations!
 
I've used the rule of thirds. A third for housing (including rates, taxes, levies), a third for living, and a third for saving. It works okay.
 
vorman said:
So I think I'm at a stage where I should start looking for a house/flat. Bear with me as I'm someone just starting out (<5 years in the working world).
Question is, how do you determine your budget for a purchase this large? For eg, for vehicles some people will say rough estimate of 20%/25% of your nett income. Is there something similar for property purchases? I know my monthly budgets and I know what I've got to spare at the end of the month. Taking existing rent into consideration, I therefore know what i can afford to pay monthly. So I need to sort of calculate backwards to get a purchase price lol. Can this be regarded as an accurate representation of price ranges I should be looking at?

Also, what down payment should you aim for? A percentage of the purchase price?

Many thanks
Click to expand...

Bond will not be approved if it exceeds 30% of your income. Maybe what you're looking for?
 
vorman said:
So I think I'm at a stage where I should start looking for a house/flat. Bear with me as I'm someone just starting out (<5 years in the working world).
Question is, how do you determine your budget for a purchase this large? For eg, for vehicles some people will say rough estimate of 20%/25% of your nett income. Is there something similar for property purchases? I know my monthly budgets and I know what I've got to spare at the end of the month. Taking existing rent into consideration, I therefore know what i can afford to pay monthly. So I need to sort of calculate backwards to get a purchase price lol. Can this be regarded as an accurate representation of price ranges I should be looking at?

Also, what down payment should you aim for? A percentage of the purchase price?

Many thanks
Click to expand...

You literally can't get a loan for anything approaching 30% of your gross income so that is the maximum limiter right there.

However doing that will probably put you in a worse position than renting and therefore the better bet would be to aim for something that costs you 15% of your gross salary BUT that you pay back at 20-25% of your income instead to negate the interest.

If you are going into a home loan paying the flat rate at 20 years (no don't even look at 30 year options) then it is NOT an investment at all no matter what your parents told you.

Don't go into buying a property because it's the "norm" and what people have convinced you it's the right thing to do. Take a much wider holistic view of why you are doing it and to what purpose.

Sure I'm not a fan of renting either, not just for the sake of money but simple things like drilling any hole I want and painting the walls whenever I feel like it in purple and pink if I like. Not to mention keeping whatever pets I want etc, but then affordability wasn't my first concern when I started looking at property.

Also beyond your monthly contribution to this you should have a fair chunk of change in your pocket before you start. I would say at least 10% of the purchase price but more likely 15% would be a safer bet to cover the bond and transfer fees and other things like alarms and security gates that might be required. That's beyond the deposit you'll put towards it to make getting the loan in the first place easier.

And never ever take a different loan or credit to make the above amounts possible. You need that in your own hard cash otherwise don't even consider property.
 
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Pitbull said:
Bond will not be approved if it exceeds 30% of your income. Maybe what you're looking for?
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Nedbank

As a general rule, the monthly bond repayment amount may not exceed the cost to the client's gross monthly income of 30% for home loans and 15% for vehicle finance.

FNB

FNB considers the customer's total commitment to loan repayments before approving any home loan. Repayments of all loans should not exceed 30% of a customer's salary. Repayments on home loans, vehicle finance, personal and other loans such as study loans are also considered to determine affordability.
 
https://www.fin24.com/Money/Money-Clinic/Bond-as-salary-percentage-20111104

Here's a good article on it.

It works out that the instalments x100 is about equil the the loan amount. So if you bond a R1m property you will pay roughly R10k monthly. Plus utilities, rates and taxes, insurance ect.

Most property websites have a calculator, go on one of them and play around with the numbers.
 
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SauRoNZA said:
You literally can't get a loan for anything approaching 30% of your gross income so that is the maximum limiter right there.

However doing that will probably put you in a worse position than renting and therefore the better bet would be to aim for something that costs you 15% of your gross salary BUT that you pay back at 20-25% of your income instead to negate the interest.

If you are going into a home loan paying the flat rate at 20 years (no don't even look at 30 year options) then it is NOT an investment at all no matter what your parents told you.

Don't go into buying a property because it's the "norm" and what people have convinced you it's the right thing to do. Take a much wider holistic view of why you are doing it and to what purpose.

Sure I'm not a fan of renting either, not just for the sake of money but simple things like drilling any hole I want and painting the walls whenever I feel like it in purple and pink if I like. Not to mention keeping whatever pets I want etc, but then affordability wasn't my first concern when I started looking at property.

Also beyond your monthly contribution to this you should have a fair chunk of change in your pocket before you start. I would say at least 10% of the purchase price but more likely 15% would be a safer bet to cover the bond and transfer fees and other things like alarms and security gates that might be required. That's beyond the deposit you'll put towards it to make getting the loan in the first place easier.

And never ever take a different loan or credit to make the above amounts possible. You need that in your own hard cash otherwise don't even consider property.
Click to expand...

Thanks for the percentages and explaining what else to budget for. I guess these rough estimates are a good way to start thinking things thorough and playing around with calculators. I'm not in a rush and just started thinking about it. The finances are the first place to start I guess.
 
vorman said:
Thanks for the percentages and explaining what else to budget for. I guess these rough estimates are a good way to start thinking things thorough and playing around with calculators. I'm not in a rush and just started thinking about it. The finances are the first place to start I guess.
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Yeah those percentages were hard and fast off the top of my head so don't take them as black/white.

But using this calculator is a great way to see how different amounts affect your overall costs etc.

https://www.fnb.co.za/calculators/homeloan/BondCalculator.html

So take a look at what you HAVE to pay vs what you optionally pay and it will give you a good indication of what to expect and purchase prices that are reasonable.

Something to remember is also the "Flexi" nature of modern home loans where any money that you overpay sits there and you can access it as you need it so in this way you can store money there and save on interest month to month.

Usually to draw money out you just need to transfer more than R1000 at a time and not small amounts.

Whatever your interest rate is against the money in your excess is basically what you are saving.

So if you bond is at 10.5% and you have R50,000 sitting in your additional home loan that would save you R437 per month which out weights just about any low risk investment.
 
vorman said:
yes very wary of this and have to think about this properly. Need to consider maternity leave, kids etc, in the future. Not sure how stable income the so can bring.
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Don't overthink it too much.

As an example:

Income increases on average around 6% per year, and rent increases on average around 10%. So buying a property means you have fixed repayment for a period of time barring interest rate changes. So it actually becomes cheaper paying your own property after about 5 years than you would have paid if you continued renting. Just something to think about :) Even if you start small with let's say a Bachelor flat that you can afford on your won. Do that instead of renting.
 
Pitbull said:
Don't overthink it too much.

As an example:

Income increases on average around 6% per year, and rent increases on average around 10%. So buying a property means you have fixed repayment for a period of time barring interest rate changes. So it actually becomes cheaper paying your own property after about 5 years than you would have paid if you continued renting. Just something to think about :) Even if you start small with let's say a Bachelor flat that you can afford on your won. Do that instead of renting.
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And all the more reason to increase your home loan payments along with your income increases so that it gets paid off quicker.

Don't fall into the trap of keeping it a static debit order.
 
SauRoNZA said:
And all the more reason to increase your home loan payments along with your income increases so that it gets paid off quicker.

Don't fall into the trap of keeping it a static debit order.
Click to expand...

This is a good point. I paid off by bachelor flat in 10 years, and it's now a rental income.

The joint property with the SO is now 3 years into the 20 years, and the Rental Income is starting to reduce the repayment. It's been 11 years since I started working, and I had my loan for the same period. We should have 2 properties paid up in about 5-6 years from now.

If you plan carefully when you are still young, life will become a little better when you are older. Just my 2c :D
 
dont forget to add monthly rates and taxes/levies into your budget as well.
Homeowners/building insurance, security armed response, maintenance, emergency repairs

just from the begining of this year I think I spent an extra 5k on maintainence (paint and electrical stuff)
 
Zophos said:
This is a good point. I paid off by bachelor flat in 10 years, and it's now a rental income.

The joint property with the SO is now 3 years into the 20 years, and the Rental Income is starting to reduce the repayment. It's been 11 years since I started working, and I had my loan for the same period. We should have 2 properties paid up in about 5-6 years from now.

If you plan carefully when you are still young, life will become a little better when you are older. Just my 2c :D
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By that he means, if you are willing to do with a lot less while you're younger, you'll be better off when you're older :p AKA pay through your nose while you're young so that you can pay it off quicker
 
Method said:
By that he means, if you are willing to do with a lot less while you're younger, you'll be better off when you're older :p AKA pay through your nose while you're young so that you can pay it off quicker
Click to expand...

Exactly! You get me! Probably the reason why I still drive an i20 in my late 30's :D
 
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