Beware the hidden costs of home purchases
Category Property
Purchasing a home is one of the biggest financial decisions a person can make in their lives. Keeping that in mind, it makes sense to consider all the costs that go with purchasing a home (including those you may not yet know of) to prepare for the day you take the leap to homeownership.
Deposit and initiation fee
Putting down a deposit on your home loan does more than ensure that the bank acknowledges your financial reliability, it also lowers your loan amount and subsequently lowers your monthly instalments. Banks can require a deposit of anything between 10% and 30% of the total purchase price, depending on the price of the property and your credit rating, before they approve a home loan.
Once your loan has been approved, the bank charges an initiation fee to start the loan. While the deposit is a flexible amount, the initiation fee is regulated by the National Credit Act and is set at a maximum of R5 000.
Bond registration costs
To ensure that the bank is provided with the necessary security to issue a home loan, a mortgage bond is registered against the property stipulating the terms of the home loan. This process is handled by a bond registration attorney appointed by the bank, who charges their own fee for their legal services.
Home and life insurance
Most banks will not approve a home loan if you have not taken out the necessary homeowners' insurance to cover building damages. This ensures that the physical investment does not lose its value while the property is still technically owned by the bank. Another important consideration is life insurance that will cover the outstanding amount of the home loan to avoid having your family lose their home in the event of your passing.
Most banks offer their own insurance in these regards, but you may choose to go with your own insurance provider, in which case proof will have to be offered during the bond registration process.
Transfer duty
Following the deposit, the transfer duty on your new home may be the biggest additional payment you face. Transfer duty is a special tax levied by the government on all property transfers over R1 million in value, which increases according to the value of the property. Home buyers should keep in mind that the title deed of the home can only be transferred once the transfer duty has been fully processed.
Transfer costs
The process of transferring title deed ownership at the Deeds Office comes with a number of costs, including a transfer levy, electronic document generation fee, search fee, and local council rate clearance. This process is overseen by a conveyancing attorney who also charges a fee for their services.
Rates and taxes
Finally, once the title deed is in your name, your municipality will require a deposit to register the rates and taxes, as well as water and electricity accounts in your name.
Prospective buyers need to be aware of the fact that the total cost of homeownership equates to somewhat more than the purchase price. That is why our iAgents are here to help guide you through your homeownership journey and prepare you for one of the biggest financial decisions you can make.
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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Author: Meridian Realty
