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Home Loans for First-time Buyers

What you need to know before applying

If you’re reading this, you're most likely a first-time home buyer. You're also stressing and worrying about making the wrong decisions. A home loan can become a burden if you don’t do proper research. According to SA Home Loans, the number one mistake everybody makes when buying a home is not doing their homework when entering the market. Interest rates on home loans for first-time buyers are normally high, as they consider you a “high risk”. But it depends on your home loan provider.

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With this guide we aim to educate you on buying your first property and securing a home loan. This includes tips and information on calculating your bond.

Your first steps

When entering the market, you should ask yourself a few questions to determine how much you're willing to spend.

Let’s look at them:

  • What is your price range according to your budget?
  • Where would you ideally like to live?
  • Do you want a free-standing house or live in a complex?
  • What size are you looking for?
  • How many bedrooms and bathrooms do you want?
  • Do you require a backyard for a pool or braai area?
  • What are your parking requirements?
  • Do you need it to be close to town, shops or schools?
  • Are you going to renovate?

Answer the above questions and you'll have a good idea on how much you need to spend on a house. The next step is to look at what influences a home loan and affordability.

What factors influence a home loan?

Now you'll need to find out if you'll qualify for your home loan. This is normally determined by a number of factors which include the following:

  • Age
  • Income
  • Job stability
  • Your credit history
  • Monthly debit orders
  • Size of the deposit you are putting down
  • Other income used towards paying the bond

Home loans for first-time buyers normally have high interest rates, as the lender sees you as a higher risk than home buyers with previous bonds. Even more so if the home loan you applying for includes extra expenses like a deposit and transfer fees.

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How affordability is calculated:

Lenders calculate your bond repayment by looking at the repayment-to-income ratio. They look at the amount of repayments versus your income. The amount calculated will give you an indication of the home loan size you’ll qualify for.

To be precise, you’ll need to supply them with:

  • The purchase price
  • A cash deposit
  • Your employment status
  • The loan type (variable or fixed rate)
  • The loan term

The calculator will then supply you with the following:

  • The current interest rate
  • Your monthly installment
  • The interest paid over time
  • The registration fee
  • The initiation fee.

To see how much you can afford, use the affordability calculator

Making it easier to get your home loan

Before applying for a home loan, there are several things that you can do to make getting your loan easier.

By having:

  • A good credit record
  • Little consumer debt

If you try to reduce your current financial debt substantially, you will be in good standing to get your home loan. Pro-tip: Before applying, start saving for a deposit as most lenders require one.

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Choosing the right type of loan

When choosing your loan type you need to specify if you want a variable or interest-only home loan.

Let’s look at the difference:

  • A variable loan’s interest rate changes and is tailored according to your risk profile. It has a flexible repayment term of up to 20 years.
  • An interest only loan is flexible and requires you to pay only the interest of the loan every month. You can adjust your home loan installment according to your income. You can reduce the interest paid with monthly installments that include capital or by once-off capital payments.

Additional fees that may be required

One of the things most buyers overlook is hidden fees or extra costs not always stipulated in your contract. It’s important that you know about them so that you won’t be caught off guard.

Let’s look at a few of them:

  • Transfer fees – need to be paid to the attorney transferring the property on to your name. It’s calculated on a scale based on the purchase price.
  • Transfer duty – need to be paid to SARS every time a house changes ownership and is calculated based on the property value. Property with a value of R600 000 or less is exempted.
  • If a house is purchased directly from the developer, no transfer duty is required, but VAT is.
  • Bond registration fees need to be paid to an attorney to register your bond with the deeds office.
  • Additional attorney fees of up to R2 000 which includes FICA, electronic instruction fees and postage may also be required.

To conclude

Securing a home loan as a first-time home buyer can be a daunting experience. If you do the necessary research you will know what to expect and be prepared, making it easier. Creditgenie is South Africa’s premier complimentary loan assist service which can assist you in finding a home loan.

To apply, click on the button below or you can contact us at: 021-835-3030.

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