Buying and financing your first home: a guide for young people
A lot of young adults today either still live with their parents or rent an apartment. This means that many first-time homebuyers are well into their twenties before they decide to step onto the property ladder. When the time comes to actually buy your first home, there’s no doubt you will be excited. However, there are so many decisions to make and a lot to manage that the process can get a little overwhelming. But, it’s a rite of passage that almost all South Africans will undergo at some point.
You’ve probably heard that it's harder for millennials to enter the property market than the generation before them, but here’s the good news: according to bond originator Ooba, banks this year will widen the door to homeownership for younger buyers. “We believe 2019 will see much stronger first-time homebuyer activity…[owing to]…the fact that they do not need to sell an existing property and the favourable bank lending requirements, specifically around lower deposit requirements,” Rhys Dyer, CEO of Ooba, has said. So, if you're ready to take the leap and start shopping for your dream abode, we have compiled a handy guide to make sure your first home buying experience runs smoothly.
Figure out what you can afford
This means putting a solid budget plan into action so you can account for all the costs associated with your property. Like owning a car, a house purchase isn't just about the cost of the monthly instalment – there are many other ongoing expenses.
When attending show days, you’ll discover it’s easy get wrapped up in the bells and whistles and then base your budget solely on the costs associated with the purchase. Remember that a three-bedroom house with a pool not only comes with a heftier price tag but is also more expensive to maintain and cover under a home and buildings insurance policy.
Consider your financing options
Unless you’re a millionaire you probably won’t be paying cash for your first home. This means you’re going to have to take out a bond and pay your home off in instalments over twenty to thirty years. If you have an existing relationship with a bank you may consider applying there first since some lending institutions tend to favour existing customers.
By the time you apply for a home loan, you should have saved 10% of the property purchase price as a deposit. While you can get a 100 percent home loan, you’ll boost your chances of getting a bond and decrease your instalments and interest rate over the term if you make a down payment.
Fast fact: According to Betterbond, the average deposit being paid by home buyers aged 20 to 30 is R88,000, while the average bond granted to first-time buyers is R739,000.
Build a good credit history
If you need to obtain a loan to purchase the property, make sure you have built and maintained a good credit profile. Most banks don’t offer mortgage financing if they can’t measure your credit risk. So one option is to have a credit card or personal loan with an established history of timeous payments. Your credit score helps banks calculate the interest rate you pay on a bond, and a good rating may help you earn a more favourable interest rate.
Fast fact: Most lenders prefer to lend to an individual whose debt is less than 36% of their gross income. Source: Business Tech
Should you buy a house or a flat?
Decide what type of property will best suit your lifestyle. Sectional title properties are popular among young, single professionals because they are more affordable, easy to maintain and most likely closer to work. Apartment living is great for couples starting out in their careers but living in a larger house would better suit a family.
Fast fact: A study that looked at property purchasing trends between 2015 and 2017 revealed that 60% of millennials purchased sectional title properties while 27% preferred to buy freehold properties. Source: Property Wheel
The memories of your first home will stay with you forever, so it's important to choose one that ticks all the criteria most important to you. But it won’t always be a matter of simple requirements that must be met; as a young, inexperienced buyer, your feelings will also play a part in your choice. But don’t let your emotions get the best of you and end up buying a property just because you loved it. It’s best to make a decision based on practicality first, and then have some fun considering the nice-to-haves.