How do House Bonds work?

[Ruxin]

My wife and I are gearing up to buy our first house early next year. Unfortunately I have no idea how this works and was wondering if someone would be able to clarify a few things for me. We're looking at a house in the R1.2 -R1.5 mil range in the Pretoria area.

1) When people talk about getting a 100% bond, does that mean they got the total amount that the bank valued the house at, or does it meant they got 100% of what they offered on the house. For example, if the house is valued at R1.5 mil by the bank and our offer of R1.3 mil is accepted, do we get to borrow R1.5 mil or R1.3 mil?

2) We have about R150 000 saved up at the moment. Am I correct in stating that we should use some of that money for the costs related to the transaction (bond registration/transfer etc.) and put the rest down as a deposit?

3) What is the property market like at the moment? I know interest rates are fairly decent, but is it a buyers market? I just want to gauge how much below asking we should be aiming for as a first offer on average (any tips would also be appreciated regarding the bargaining process and potential pit-falls we should look out for).

3) It all depends on the area you are purchasing in. The more popular areas you are not going to get away with a low ball offer. These areas get multiple offers in the first week. The sellers are also aware of this and don't accept low ball offers.

This is from what I see in the good suburbs in Cape Town. I work in the industry.

Also try to get a Lightstone or a CMA on the property to see what the property is worth if you want to go under asking.

 

[Frikkie5000]

I know that this is slightly off topic but you could consider renting as opposed to buying.

It may not be a "glamorous" as owning the property but it can work out a lot cheaper and if you have discipline, you could save/invest the difference in price that you would pay for rent vs a bond plus all the other things that come with owning a property.

The Mrs and I did some research on this for the area in which we wanted to move to:

We could rent out a 2 bed unit for R11 500 PM. The same property was on the market for R2 Mil.
Had we gone the route of purchasing, we would've also had to fork out for monthly levies (R2600 PM) + rates & taxes, over and above the bond payment.
In this case, renting worked out to be far more sensible.

We actually looked at this and it would be possible for us to rent at about R3000 cheaper compared to buying, all things considered. Unfortunately, this would quickly cease to be the case in about 3 years or so, given the rental increases. The no pet thing is also very restrictive.

 

[SauRoNZA]

Thanks everyone. Some sage advice been given already.

This sucks though

http://www.fin24.com/Money/Property/is-the-age-of-the-access-bond-over-20170202

Why? What do you need the access bond for?

Don't borrow more money than you need.

 

[doubletrouble]

I actually have a question.. When is the transfer fees etc due? When you put in the offer? When the bank approves? Once the work is complete and property just needs to be registered in your name?

 

[rodga]

How the hell did you get that right?

Wasnt a requirement for SB and Nedbank when they sent their loan offers.
Bank Valuation was R1,8m, loan amount 1,1m which must have played a part.

 

[MielieSpoor]

I actually have a question.. When is the transfer fees etc due? When you put in the offer? When the bank approves? Once the work is complete and property just needs to be registered in your name?

Upon registration happening. The conveyancer will notify you that the fees are payable as they are ready to do the transfer. They will then give you a set number of days to pay all moneys still outstanding. You should have the money ready as soon as you start with the process. Transfer and registration can happen anything from 4-6 weeks and longer. There are a number of factors that influence this process.

 

[MielieSpoor]

Wasnt a requirement for SB and Nedbank when they sent their loan offers.
Bank Valuation was R1,8m, loan amount 1,1m which must have played a part.

They could also have judged that you have adequate life insurance in place. That was the case with me. I was told that since I have adequate life insurance in place, I don't have to take out additional insurance to cover the bond in case something should happen.

 

[Lostboy]

Life insurance was not required for my bond of 1 Bar at the beginning of the year.

Same here bought two years ago, +1 bar, they only required building insurance.

 

[Sinbad]

I know that this is slightly off topic but you could consider renting as opposed to buying.

It may not be a "glamorous" as owning the property but it can work out a lot cheaper and if you have discipline, you could save/invest the difference in price that you would pay for rent vs a bond plus all the other things that come with owning a property.

The Mrs and I did some research on this for the area in which we wanted to move to:

We could rent out a 2 bed unit for R11 500 PM. The same property was on the market for R2 Mil.
Had we gone the route of purchasing, we would've also had to fork out for monthly levies (R2600 PM) + rates & taxes, over and above the bond payment.
In this case, renting worked out to be far more sensible.

Difference is, you have an asset when you buy. When you rent, you buy someone else an asset.

 

[^^vampire^^]

How the hell did you get that right?

I didn't need life insurance when I took out my bond about 5 years ago either.

I think a few important things that need to be mentioned is that the bank most likely won't entertain giving you a bond unless you have a 10% deposit. If the place costs R1.3 mil you will need to put down R130k. On top of that you will need to pay transfer and all the other legal fees and account setups which easily means you will need R200k, possibly more before you start the process on that kind of price. I'm cautious on these things and like to make sure I have a buffer in case something goes wrong.

Like others mentioned, your ongoing costs need to be assessed as well. Life insurance if they require it, monthly bond repayment, property rates & taxes, money for maintenance of the property over time. Make sure you can comfortable afford these. Also make sure you have a buffer for bond increases. When I got my bond things were stable for about a year, then they successively put the interest rate up by .25% every 3 months about until the repayment was 2% higher than it was initially. Wasn't a problem for me as my property was very well in my affordability but I have come across well educated people that think they can buy a property for R1.3 mil when they only clear R13k a month.

 

[zerocool2009]

Life insurance was not required for my bond of 1 Bar at the beginning of the year.

The life insurance requirement differ from bank to bank.

I know FNB dont ask for life insurance above R900 000 or R1000 000.

Anything below that, it is a requirement before the bond is granted

 

[zerocool2009]

Thanks everyone. Some sage advice been given already.

This sucks though

http://www.fin24.com/Money/Property/is-the-age-of-the-access-bond-over-20170202

An access / flexi bond in my eyes remain one of the best savings options without ANY fees taken and a guaranteed interest rate saving (which best most savings products BY FAR)

 

[CUZ_458]

Difference is, you have an asset when you buy. When you rent, you buy someone else an asset.

Correct ... but the assets only really becomes yours once it's fully paid off . I'm still trying to find the courage to do the the whole home loan thing.

 

[Brontosaurus]

Correct ... but the assets only really becomes yours once it's fully paid off . I'm still trying to find the courage to do the the whole home loan thing.

The sooner the better. House's are not getting any cheaper that's for sure.

Another thing to bear in mind when you rent; your rental contract contains an escalation clause, meaning you pay more for your rent on a yearly basis. Once you've bought a house your monthly payment at month 1 is the same as your monthly payment at month 240 (assuming you haven't paid any extra into your bond).

You may be smiling now while renting a place, but in 5 years that rent is going to be the same as your bond payments. After that... well... you do the math.

 

[Sinbad]

Correct ... but the assets only really becomes yours once it's fully paid off . I'm still trying to find the courage to do the the whole home loan thing.

True - but you still accrue the value that the property has increased even if you never pay the bond off.
My house is worth double what we paid for it. Bond is only about 15% down from initial value.

 

[Gtx Gaming]

The sooner the better. House's are not getting any cheaper that's for sure.

Another thing to bear in mind when you rent; your rental contract contains an escalation clause, meaning you pay more for your rent on a yearly basis. Once you've bought a house your monthly payment at month 1 is the same as your monthly payment at month 240 (assuming you haven't paid any extra into your bond).

You may be smiling now while renting a place, but in 5 years that rent is going to be the same as your bond payments. After that... well... you do the math.

Levies,rates and taxes also increase on property.

In CPT it is better for "middle class" family to rent at this stage, as it is really difficult to afford property. I can't even afford a flat in a decent area, because the levies are insane sometimes!

I hope to buy property soon, just need just rob a few banks first

 

[I.am.Sam]

not sure if its been posted but ask for a discount at the lawyers , ask for discounts wherever you can

 

[Brontosaurus]

Levies,rates and taxes also increase on property.

In CPT it is better for "middle class" family to rent at this stage, as it is really difficult to afford property. I can't even afford a flat in a decent area, because the levies are insane sometimes!

I hope to buy property soon, just need just rob a few banks first

True, but their proportion to your total cost is relatively small.

I do understand why it would be better for some to rent though. It's really expensive to buy a house! I lived in a schitbox of an apartment for way too long saving up for all the costs associated with buying a house, and truth be told, I got really lucky with regards to my bond (both the interest rate and bond percentage granted)

 

[calgal90]

Wasnt a requirement for SB and Nedbank when they sent their loan offers.
Bank Valuation was R1,8m, loan amount 1,1m which must have played a part.

I also recently bought for R1 050 000, got a 100% bond and FNB did not require life insurance. It was a new property, bought from the developer. But I don't think that would have any effect on the life insurance requirement.

 

[rodga]

They could also have judged that you have adequate life insurance in place. That was the case with me. I was told that since I have adequate life insurance in place, I don't have to take out additional insurance to cover the bond in case something should happen.

At the time, I had no life insurance.