Things you need to know before you start a property search

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Against all odds, 2024 is still believed to be the year of the first-time homebuyer resurgence. And while it’s a slow climb to the top, a combination of low house prices, competitive bank interest rates and impending rate cuts has many aspiring homebuyers hungry to get into the property game. 

In Q1 2024, first-time homebuyers accounted for 46% of our customer intake – a 10% dip from the height of the first-time homebuying frenzy in 2020. However, I believe that young homebuyers are the beating heart of the property industry and are essential in closing the significant housing gap that still exists in South Africa today.

In addition to reducing housing inequality and promoting stability and security, owning your own home is one of the best ways to build generational wealth and break cycles of economic hardship.

Unfortunately, many would-be homeowners still lack the educational tools required to empower them on their homebuying journey.

It’s important to remember that the homebuying process has significant financial and legal implications, therefore arming oneself with knowledge prior to shopping around is key. There are things that every first-time homebuyer needs to know before starting their property search.

Credit score matters

The first step on the homebuying journey is to check your credit score. Your credit score is one of the biggest determining factors in whether your home loan application will be approved by the banks.

It is used to gauge your ability to repay your monthly debts, determine your risk profile and to secure the best possible interest rate on your home loan. It is easy to check a credit score online using services like the Bond Indicator – a free online prequalification tool.

Your credit score is based on a number of factors, including your debt repayment history, how often you’ve applied for credit, what kind of credit applied for, how long your various accounts have been open and how much you owe.

A credit score of at least 610 is required for a home loan application to be considered by the banks, and if your score is below this benchmark, it’s best to spend six to 12 months taking the necessary steps to boost it before applying again. Clearing your credit record requires paying outstanding bills in a timely manner, closing accounts once you’ve paid them off and refraining from applying for additional credit during this time. It’s also a good idea to check your credit record for inaccuracies as these do sometimes occur.

What you can afford

Being realistic about your finances and what you can afford before starting your property search is an essential part of a rewarding home buying experience.

With interest rates remaining elevated, being conservative when calculating your budget to ensure that you have some breathing room should rates go up again or should your financial circumstances change.

As a rule of thumb, you should ideally not be allocating more than 30% of your salary to home loan repayments, but this figure should also take into account:

  • your monthly living expenses,
  • the current interest rate, and
  • whether or not you are applying for a joint home loan.

To take the guesswork out of this, you can use tools like the Bond Calculator to input your gross monthly income, net monthly income, total monthly expenses and desired repayment term as well as the current interest rate to see both the total bond you would qualify and what your monthly repayments would be.

How to boost your chances of approval

Our latest oobarometer (Q1 2024) reveals that while national bank approvals on home loan applications were at 66.4% in the first quarter of 2024, approval rates secured for our customers in the same period stood at 83.4%.

You have a higher chance of your home loan application being approved when using a home loan comparison service because we submit your application to multiple banks (up to eight) – and different banks have different lending criteria.

Home loan comparison services also have longstanding relationships with the country’s biggest lenders and will scrutinise your application to ensure that all of the necessary information is present and correct.

Another way to boost your chance of approval is by getting pre-qualified. This can be done for free online, with a tool that checks your credit score, income and expenses to assess affordability. Upon completion, you’ll be issued with a pre-qualification certificate. Our data shows that over 90% of home loan applications that are submitted with a pre-qualification certificate are approved.

Another fundamental way to secure a home loan is through a deposit. Home loan deposits continue their upward trajectory – especially amongst first-time homebuyers.

In Q1 2024, 47% of our first-time homebuyer applications secured their purchase with a deposit – up from 43% in Q1 2023. Furthermore, the average deposit from new homebuyers rose to 10.9% of the purchase price – up from Q1 2023’s 9.7% and significantly higher from the average deposit of 7.3% recorded across all applications processed in Q1 2024.

A bigger deposit helps to reduce your home loan term and/ or your monthly home loan repayments. It’s also a great way to secure the best possible interest rate and show both the banks and sellers that you’re a serious homebuyer.

You’re allowed to negotiate

In a challenging economic environment, receiving the best interest rate possible on your home loan is an effective way of keeping costs down and saving in the long run.

The advantage of using a home loan comparison service is that by submitting your application to multiple banks, you have multiple interest rates to choose from. Many applicants are unaware that they’re able to negotiate with the bank for a better interest rate, and that your bond originator will negotiate on your behalf.

The country’s banks are actively competing for home loan business and the likelihood of you getting a rate below prime is high. Many homebuyers are quick to jump at the first offer, but that it’s important to compare and assess because even minor rate discounts can save you tens of thousands of rands in the long-term.

The often-overlooked fees unpacked

As a first-time homebuyer you should steel yourself for the additional, overlooked costs that come with buying a property. This includes transfer duty (if a home is priced at over R1.1 million and not off-plan), conveyancing attorney fees, administration fees and bond registration fees.

Using the current average first-time homebuyer purchase price of R1,171,798 as an example, these fees would total just under R74,000. However, we are seeing an increasing number of banks offering cost-inclusive lending to first-time buyers in the form of 105% home loans which removes the obligation to put down a deposit as well as covering the upfront bond and registration costs.

While the rise of 105% home loans does remove some of the barriers to entry for first-time buyers, these loans come with higher monthly repayments and a higher interest rate. If in doubt about which option would work best for you, use a free online tool such as our Transfer Cost Calculator to what you would need to have set aside to cover the upfront costs of your purchase.

In conclusion

First-time homebuyers whose monthly household income does not exceed R22,000 have access to a once-off first home finance subsidy which can be used towards a deposit or to off-set some of these costs.

The process of looking for your first home is incredibly exciting and with the help of experts, doesn’t need to be tedious and complicated. There is so much information available freely online to help young buyers, and to give you the peace of mind that you’re not alone on this journey.


Gavin Lomberg | CEO | ooba Home Loans | mail me |


 



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