How to get a home loan – with the help of your family
Many first-time home buyers find it difficult, if not impossible, to enter the property market due to the sizable deposit required to buy a home. Therefore, they are forced into one of two options – either pool borrowed resources to come up with a deposit to qualify for finance; or continue renting and paying towards someone else’s bond, resulting in them spending a lot of money but having nothing to show for it at the end.
Head of Absa Home Loans Carel Grönum says that it is now easier for first time home buyers to purchase their home though the Absa Family Springboard home loan. Buyers, who meet the bank’s credit criteria and qualify for a home loan, are now able to buy a property with the help of a family member or friend. With permission from the helper, 10 percent of the property purchase price will be ceded to Absa as collateral.
- Do your homework - Be honest with yourself in terms of what you can afford
- Shop for the best deal – Once you know the amount you qualify for shop around to get the best deal.
- Know how much interest you are paying
- Learn to love cash - Try clearing as much of your debt as possible, such as clothing accounts, to ensure there’s extra cash at the end of the month.
- Be penny-wise: If you have a little extra money at the end of the month, put this towards the home loan repayment, thereby reducing the repayment period.
For more information on the Absa Family Springboard home loan please visit www.absa.co.za
TO RENOVATE OR RELOCATE – A HOME OWNER’S DILEMMA
The South African government’s decision to reduce transfer fees for properties under R2.3 million have left many home owners with an interesting question; is it the right time to be renovating or should you be looking at purchasing that new dream home?
In February, Finance Minister Nhlanhla Nene announced a reduction in transfer fees on the sale of residential properties which will provide welcome relief to middle-income households. The new rates eliminate transfer duty on properties below R750 000, while the rate on properties above R2.2 million have been increased.
The move means a removal of one of the barriers to entry for people interested in purchasing a home, particularly first-time buyers, leading to an increase in demand for properties in this sector, which will in turn drive up property prices.
Home owners are now faced with the dilemma whether to buy a new property and relocate or if it’s best to rather renovate.
“Buying a home is a major commitment, and most probably represents the largest investment most of us will make in our lifetime. The decision by government to reduce transfer fees and increased level of developments means that many South African home owners now have more options when it comes to getting the best return on investment,” says Carel Grönum, Managing Executive of Absa Home Loans
It is therefore imperative, Grönum says, that existing homeowners do their homework well before deciding on the most prudent investment.
Below are five tips to help home owners make a more informed decision:
- Ensure it makes financial sense: Interrogate your finances and weigh up the costs of buying new versus renovating. Which one will be a better return on investment? The possible financial gain, while not the only reason, should be key when making your decision. Calculate how much it costs you to live in the home that you are currently in. Don’t forget to include rates and taxes, household insurance policies, and other costs.
- Work out if you can afford the costs of owning the new home: When looking at properties to purchase, make sure you do your homework thoroughly. Consider all the reasons that make you want to move house i.e. location, traffic etc.
- Don’t forget about the hidden costs: Transfer duties might be lower but don’t forget about things like conveyancer’s fees and deeds office costs. If you’re selling, remember capital gains tax, the estate agents commission and bond cancellation fees.
- Calculate your disposable income: Income tax is up, the fuel levy has increased and the petrol price is expected to increase further. All of this will mean an increase in your cost of living which will affect your monthly disposable income.
- Do a projection: Consider the potential growth value of the home that you are currently living in versus the area that you want to buy in. You may get far better value in one area i.e. a bigger home for less, but a smaller home that costs more in a better area may enjoy a better return over the long-run and be easier to sell when the time comes.
“There are many things to consider when making this decision and the ramifications will be felt long-term. Rushing into it is not advisable and caution is the best recourse. The South African home owners market should continue its current upswing meaning home owners will remain in this strengthened position for the foreseeable future.” concludes Grönum.
For more information on how Absa helps guide you home, search Absa Homeloans at www.absa.co.za.
Buying a holiday property / second home: The benefits and costs involved with buying a second property or holiday home.
Expert view from Ewald Kellerman, Head: Customer Interaction, Absa Home Loans
As a means of investing, buying a second property potentially offers two types of returns: an income and a capital return. An income return consists of all money received for letting the property while a capital return refers to an increase in the value of the property. The capital return alone is unlikely to make the property a good investment, and one would have to ensure that the property generates a sufficient total return after subtracting costs to determine if the investment is worthwhile.
Should the property be used as a holiday home or second property, the value refers to more than just the capital return. Owning a second property will give you a sense of ownership, guaranteed holiday accommodation and the lifestyle benefits that goes with it. It will be up to the investor to decide whether it is worth the expense.
The maintenance and running costs of a property remain two of the biggest deciding factors that need to be taken into account when deciding whether to buy a second property or not. These costs include, among other, rates and taxes, electricity, security and regular maintenance which could become quite expensive. The total cost of ownership therefore includes much more than the initial price tag.
Banks typically require a deposit of around 10% for second or investment properties. The qualifying criteria differ slightly from bank to bank, and it is advisable to save as much as possible for a deposit to reduce the bank’s risk and ensure a better interest rate for the life of the loan. The bigger the deposit, the more likely you will be offered a more attractive deal from your bank.
It is important to keep in mind that the income you receive from a rental property is taxable. Interest on a bond and some maintenance costs are often allowed to be deducted as an expense, which can reduce the taxable amount considerably. Certain capital gains exemptions also only apply to your primary residential property, but not to an investment property. Make sure that you take this into account when calculating total return, and consult a tax practitioner to understand the full tax implications.