How to go about owning your first home
Probably the largest - and certainly most expensive purchase you will make in your lifetime - is the acquisition of your own home. This is rarely effected when you are very young, just out of college, and looking to establish a career. Buying your own home is very much about stability, direction, income and future vision. None of this is particularly strong for many potential buyers under the age of thirty - and even then, difficulties may include the cost of children, job security, salary and commitments, the skittishness of banks, the state of the economy, and location.
But buying your first home is one of the best goals to work towards as soon as possible in your lifestyle and future financial planning. Like anything else, if you strategise, understand the sacrifices, and have a determined and informed view of your goals - not to mention support in the form of a partner or family and friends, business colleagues and employers, and a good realtor - then you are likely to find solutions to this sometimes vexing and certainly worldwide problem.
The advantages of buying
If you're currently renting you'll be saying goodbye to quite a substantial sum of money each month - money that isn't taking you anywhere, improving your life or establishing an appreciating asset. Instead you are contributing to someone else's. When you rent, you pay the landlord, when you buy and have a bond you are essentially paying yourself. Just imagine how much better it would be if that rent went into a bond of your own? Benefits of ownership include:
- You can make your own improvements... from adding energy-efficiency changes which will reduce your monthly utility bill, to knocking down walls for more open space or redecorating the kitchen and bathroom. All of which improves your lifestyle and adds value to your home.
- You can build a second income stream by renting a room or garage space.
- You can't be forced out of your own home (unless you stop paying the bond of course) but you are no longer subject to a landlord's whims.
- Waiting for a landlord to fix problems can take ages - with your own home you can make your own decisions and get things done. Saves a lot of stress and frustration.
- You can lock in your repayments or make additional payments when you have some ready cash to help bring down your bond. In short you are captain of your own ship and unlike paying a rent, you can adjust your payments to suit any changing situation - provided of course, that you meet your minimum agreed repayment.
- The beauty of your own home means that over time, the value of your property increases - in other words you are building up equity which can be used to fund renovations, children's education, and even the purchase of a second property as an investment.
Things you need to think about when looking to buy your first home
Home ownership requires financial preparation. When you own, you are responsible not only for the bond, but also insurances, rates, utility costs and general maintenance. You will have to fully evaluate these costs against your income and capacity to pay.
- So, rule number one is to first reduce as much debt as possible. Then establish a savings fund that you can contribute to regularly, as well as adding to whenever you have some spare cash.
- When you want to take out a loan, you need to shop around for the best options within your price range. It is better to be pre-approved before you shop for a home. Get as much advice as you can and find the terms that are most favourable to your budget.
- If you are considering alternative financing to cover the down payment, you should be careful when making this choice. You want your home to add value to your portfolio, not become a millstone around your neck.
- When determining affordability, remember that along with rates and insurance, your monthly payments should not be more than thirty percent of your income after tax. There are other commitments that must be considered as well. A smaller home to begin with, will avoid undue stress until you can work your way to a better position and move on. Try our bond calculator to determine affordability.
- Once you have determined how much you can really spend and are pre-approved you should find a good real estate agent to work with - someone who will truly listen to your wants and needs carefully. Finding the right size home to begin with, and in the right location where your investment is more likely to grow, is possibly key to your successful home building for the rest of your life. A good realtor will explain the market and help you find a home that suits your needs and that you can afford, offering several options and negotiating terms that you are happy with.
- Request a home inspection. This may seem like an additional cost you could do without - but better to source problems before you purchase than find yourself in trouble a couple of years down the line. Problems may include mould, termites, foundation issues and a bad roof. The inspection can save you thousands in repairs later on. If you know the house requires additional money spent on it, you should be able to negotiate a lower price.
- Ensure that the seller provides you with all the necessary documentation such as: a rates certificate, electrical compliance certificate, gas compliance certificate and electric fence certificate of compliance.
- Other costs you will need to take into account include: transfer duty, bond registration costs, moving costs, new school uniforms (if moving into a new area), curtains, blinds, new furnishings, etc.
The steps when applying for your first bond
Once all assessments have been done: location, costs, bond rate, the stability of your income and size of affordable contribution, then you are ready to seek approval of your application for financing in the form of a bond. These are the steps you'll follow:
- Once your application is approved, the bank will instruct your Bond Attorney to begin registering the bond.
- The seller will advise his Transferring Attorney to transfer the property. Title deeds and cancellation figures are requested from the bank which is currently holding the bond.
- A rate clearance is requested from the local authorities/municipality.
- The Bond Attorney contacts the Transferring Attorney and advises the amount available for guarantees. They then request the draft transfer deed and guarantee requirements.
- The Cancellation Attorney is requested to cancel the seller's bond on receipt of a guarantee for the outstanding amount.
- Once the Transfer Attorney has received the title deed and cancellation figures, the buyer and the seller sign the transfer documents. The buyer pays the transfers costs to the Transferring Attorney.
- The Bond Attorney prepares the bond documents and the buyer signs these documents and pays the cost.
- The Bond Attorney lodges the documents at the deeds office.
- The deeds office receives the documentation and checks it before being registered.
- Once the bond is checked and registered, the house is yours and you may receive the keys.
- From the date of the approval of your application to final ownership of a home can take up to three months.
Author: Leapfrog Property Group