How do House Bonds work?

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Frikkie5000

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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).
 
Frikkie5000 said:
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).
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100% is the transaction amount, not the property value.

Yes, some would go to legal fees and duties. Buying a house is expensive. The municipality wants deposits and whatnot as well. It all adds up. Careful not to put down too big a deposit that will out you in a corner later.

The bond market is down. People are selling fewer houses than last year. Doesn't mean that there are fewer houses on the market. With your price range, there will be less competition and you just may catch someone in the process of emigration, which puts pressure on them to sell. Try a low ball offer.
 
What Messugga said is correct..

I would also pay for the legal fees etc upfront - the interest on this over time will add up somewhat.

It's the seller prerogative to choose the transfer attorneys (which IMO is ridiculous). Having said this, I would also make sure that the attorney who are chosen by the seller are legit.

I would also recommend applying for an access bond - this way, you'll be able to access any additional funds which you've put into the bond should the need arise.

The finance house who offer you the bond will require life insurance for whomever the bond's name is registered in. Don't fall into the trap of using their in house life insurance - rather shop around.

You'll also need to ensure that a proper electrical compliance is issued.

If you're looking to buy into a sectional title complex, make sure that there are adequate reserves in the kitty.

Good luck!
 
Life insurance was not required for my bond of 1 Bar at the beginning of the year.
 
Many banks are not granting 100% bonds anymore, so you will need to save for a 10% to 20% deposit.
You will also need to save for transfer fees, bond registration fees, deposits with the municipality and movers.
You can use an online calculator to see round about what this would cost - https://www.rawson.co.za/transfer-cost-calculator

With bonds, you need to prove your affordability with the bank, when applying be sure to have made a list of ALL your expenses you incur in a month, your last 3 bank statments and your last 3 payslips. You will also have to state any debt you have such as credit cars, car loans, store cards etc. The bank will then come back with the loan amount you are approved for and the interest rate they will give you.

If you get quotes from multiple banks, you can play them against one another to get better rates.
 
i believe the 100% bond is up to 100% of the valuation by the bank ( they need to be able to recover their cash should you default). cant be 100% of an arbitrary number between seller and buyer. Nkandla is a special case, but no bank will grant a $300mil bond for it (hopefully)

you will also pick up when you go bond shopping that banks generally give better interest rates based on the % deposit you pay (some even has a minimum of 20% before they will even consider making you an offer).
Thus look carefully at what you will be paying in the long run - sometimes better to rather save a bit longer.

lawyer fee's/ transfer at that value +- 60k last time i checked
 
Messugga said:
Yes, some would go to legal fees and duties. Buying a house is expensive. The municipality wants deposits and whatnot as well. It all adds up. Careful not to put down too big a deposit that will out you in a corner later.
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So much this.


*someone who didn't (still doesn't) knew a lot about these things
 
Bought a house 1 year ago for R795k. Went through betterbond, I did not pay them 1cent, and they did all the work for me, arranged for all the banks to view the house and make me an offer and and the end I took the one with the lowest interest rate ofcourse.
Attorney fees and transfers fees etc all added up to R50k. Got 100% loan for the house, which is the R795k that went to the previous owner and the 50k came from my savings. Your repayment rate is pretty much 1% of the bond value, mine is R8200 + building insurance which is R300. I gave the figures so you could get real values to compare with. Also they said life insurance is not needed as the bond is in a certain range which does not require that(usually about R500 p/m). Lastly you add the water, refuse and property tax according to your house value and where it is situated. Mine all adds to R9500 excl electricity.

Hope it helps.
 
Neo_X said:
i believe the 100% bond is up to 100% of the valuation by the bank ( they need to be able to recover their cash should you default). cant be 100% of an arbitrary number between seller and buyer.
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The 100% is on the transaction value, not the valuation by the bank. If the valuation by the bank is lower than (or even the same as) the transaction value, they will typically just not offer a 100% bond.
 
Frikkie5000 said:
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).
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Its great that you have a deposit, that will help a lot.

I'm not sure if you can apply for a pre approved loan anymore but its a good idea to know how much you qualify for. However that does not mean they will give you that amount for a particular property.

So what will happen is you find a house and make an offer on it for R1,3 mil. The offer is accepted and then you apply for a loan, you must apply for the full amount. They will then grant you a 90% bond (most likely) meaning that you must now come up with R130k +costs. You can shop around for lawyers but its never free, transfer costs are a % of the value of the property.


The property market us up and down at the moment, depending on where you are. If you are going to buy a house consider that you will lose money if you sell it within 5 years.
 
skusku said:
Bought a house 1 year ago for R795k. Went through betterbond, I did not pay them 1cent, and they did all the work for me, arranged for all the banks to view the house and make me an offer and and the end I took the one with the lowest interest rate ofcourse.
Attorney fees and transfers fees etc all added up to R50k. Got 100% loan for the house, which is the R795k that went to the previous owner and the 50k came from my savings. Your repayment rate is pretty much 1% of the bond value, mine is R8200 + building insurance which is R300. I gave the figures so you could get real values to compare with. Also they said life insurance is not needed as the bond is in a certain range which does not require that(usually about R500 p/m). Lastly you add the water, refuse and property tax according to your house value and where it is situated. Mine all adds to R9500 excl electricity.

Hope it helps.
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Because under R1 mil.
 
marlin178 said:
What Messugga said is correct..

I would also pay for the legal fees etc upfront - the interest on this over time will add up somewhat.

It's the seller prerogative to choose the transfer attorneys (which IMO is ridiculous). Having said this, I would also make sure that the attorney who are chosen by the seller are legit.

I would also recommend applying for an access bond - this way, you'll be able to access any additional funds which you've put into the bond should the need arise.

The finance house who offer you the bond will require life insurance for whomever the bond's name is registered in. Don't fall into the trap of using their in house life insurance - rather shop around.

You'll also need to ensure that a proper electrical compliance is issued.

If you're looking to buy into a sectional title complex, make sure that there are adequate reserves in the kitty.

Good luck!
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I actually disagree with the legal costs upfront, unless you cannot afford them upfront.

I know this sounds counter-intuitive, but I would rather capitalise as much as possible and as soon as the bond registers put all those funds directly into the bond. That way your bond is higher but you've reduced the capital balance.

This is obviously assuming that the bond is a full access bond. That way should there be any unforeseen circumstances, those funds are still accessible.
 
FNB's Calculator gives you a good indication of the transfer costs etc, but I would also consider other optional costs like burglar bars or security gates to be fitted up front if required.

Don't make the mistake of "doing those later" like myself and many others do.

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


Transfer Cost
R 17,950.00
Bond Cost
R 19,450.00
Initiation Fee
R 5,985.00
Transfer Duty
R 18,000.00
Total
R 61,385.00

That's on R1,300,000.

I would pay the initiation fee up front and not include it in the bond either as they tend to do by default.
 
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Also, when looking around, do all the calculations on what the house will cost you before hand (bond/month, rates & taxes, insurance, etc). After you signed the OTP and you then only find out what all these things will cost and try to get out of the contract, it will cost you a lot of money. I'm in that situation now!

A couple made an offer to buy my house and they went in head-over-heels and didn't consider everything. They got a 100% bond for the house and now don't want to go ahead as they say that they can't afford it. The problem for them is that they agreed to the contract and met all the requirements, but they don't want to go ahead with the transfer. That means they will still need to pay the agent commissions of more than R30K and I can hold them liable for any and all damages as a result of them not fulfilling their contractual obligations. This can and most probably will cost them a lot of money if they do end up walking away from the transaction.

So take a few days, get other opinions on the property you are considering and make sure you do a proper cost calculation before you sign anything. When you do want to sign, make sure you read every single sentence of that contract properly, and make the agent work for his money by having him/her explain every little detail of the contract if you don't fully understand something.

Also, if something is not mentioned in the contract/OTP, make sure you put it in writing on the OTP and have everybody sign for it. That will cover your ass later on and there can also be no ambiguity about anything.

Good luck!
 
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.
 
marlin178 said:
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.
Click to expand...

And in a few years my bond is paid off and you will by then pay R20k a month on rent...
 
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