House purchase, determine affordability/budget?

[JayM]

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.

10% rent increases don't really happen much anymore. Certainly not in JHB/Sandton. Also, don't forget about insurance, rates, taxes, levies, special levies, maintenance, transfer fees, transfer duty, bond registration etc, not to mention the increased flexibility and mobility that renting offers. The answer isn't always clear cut.

 

[Splinter]

10% rent increases don't really happen much anymore.

Speak for yourself

 

[Pitbull]

10% rent increases don't really happen much anymore. Certainly not in JHB/Sandton. Also, don't forget about insurance, rates, taxes, levies, special levies, maintenance, transfer fees, transfer duty, bond registration etc, not to mention the increased flexibility and mobility that renting offers. The answer isn't always clear cut.

No matter how you dice it. It will always turn out cheaper having purchased a home as opposed to renting it, even if you're paying more on a bond at first that you would have if you rented.

You're not just paying off someone else's bond, you've purchased an appreciating asset.

 

[Barbarian Conan]

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

Use a bond calculator, and assume realistic worst case scenarios to determine what price range you should look at.
I believe that if you can't save at least 10% of the purchase price, you shouldn't really be looking at property. Of course, you will use some of that for lawyers fees and a rainy day fund. Property ownership can be expensive.

 

[killerbyte]

Dont forget you also have to pay the transfer fees and lawyers fees. 100% bonds which cover those costs are not an option any more.

 

[Kosmik]

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.

So want to start doing this once cc is paid off. Got an annual statement today, over R140k in payments and principle debt only down by like R14k Bond in 3rd year.

 

[JayM]

No matter how you dice it. It will always turn out cheaper having purchased a home as opposed to renting it, even if you're paying more on a bond at first that you would have if you rented.

You're not just paying off someone else's bond, you've purchased an appreciating asset.

On higher priced houses, transfer duty is huge. Unless you live there for a good few years, renting will definitely work out much cheaper.

 

[ToxicBunny]

So want to start doing this once cc is paid off. Got an annual statement today, over R140k in payments and principle debt only down by like R14k Bond in 3rd year.

Wait until you decide to renovate... you'll reset your life entirely on that front

But yeah, I'm on the verge of adding a significant amount extra to my bond each month once all the short term debt has been removed from my life

 

[Kosmik]

Wait until you decide to renovate... you'll reset your life entirely on that front

But yeah, I'm on the verge of adding a significant amount extra to my bond each month once all the short term debt has been removed from my life

I am renovating - me

 

[zerocool2009]

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.

The 3rd is called RTI in homeloan terms (and it is regulated by the national credit act (NCA) actually).

If a bank gives a client a loan, and his RTI is 40%, and he cant repay, the BANK is in big trouble (as they gave the loan).

 

[calgal90]

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

The bond and deposit is not the only thing you need to think of. There are other upfront costs such as transfer and bond costs. These can be quite a hefty amount, depending on the purchase price of the house.

Also add rates & taxes, water and levies (if you buy a sectional title) into your budget to make sure you can afford your bond payment and the extras. My extras cost me an additional R2000 above my bond payment (and it can be alot more) so it's important to keep that in mind.

I recently bought my first property and I was not very clued up on the process. Some advice from my newby experience:
- Try buy in a new development. You don't pay transfer fees which can save a lot of money that you could add to your deposit and you get a new place that should not require any major maintenance for a few years.
- That being said, if you buy under R900k (or it might be R950k, can remember the threshold) then you won't pay transfer fees so that's also an option
- You don't have to put down a deposit. But, a deposit will decrease your interest rate - even a 5% deposit makes a decent difference to your rate.
- You can do a pre-qualification with the banks. It will give you a rough idea of what the banks are prepared to give you, but it's not 100% accurate. I found the banks offered me more when I did the actual bond application but the pre-qual gave me a good idea of what I could shop around for.

 

[zerocool2009]

And another tip that guys forget, if you apply online (via FNB), they will pay 40% of your first debit order back to you in eB.

If you put some sort of deposit down (the bank will for sure lower the rate compared to no deposit). My rule, max 10% as you cant resuse that EVER again

 

[Ancalagon]

And another tip that guys forget, if you apply online (via FNB), they will pay 40% of your first debit order back to you in eB.

If you put some sort of deposit down (the bank will for sure lower the rate compared to no deposit). My rule, max 10% as you cant resuse that EVER again

Sometimes when you buy via an agent, they waive the loan registration fees for you. Loan registration fees are around R20k if I remember correctly. But that is when you buy via the developer as far as I know.