Exhilarating! Or scary? First-time home buying can be a bit of both, but this guide promises to help make it more of the former than the latter.

To make the right decisions, you’ll need negotiating skills and you’ll need to understand the ins and outs of financing. You’ll need to understand the contracts that you’ll have to sign and you’ll have to know if the house you want to buy is a good prospect.

You’ll come into contact with real estate agents, mortgage brokers, home inspectors and other professionals to help with the process and you’ll need to understand what each specialist is meant to do.

Property experts and stakeholders all agree — now is the best time to get on the property ladder in years!

Should you rent or buy?

“My best advice to any first-time buyer would be to make sure that they do not over-extend themselves when buying their first property,” says Tony Clarke, Managing Director of Rawson Properties. “You need to take possible interest rate fluctuations into consideration and allow for a rise of at least four percent so that you are not forced to sell your home prematurely as a result of not being able to meet monthly payments.”

After factoring in a hypothetical four percent interest rate increase, can you still comfortably afford your monthly instalment? If you are stretching yourself to the limit it would probably be best to keep on renting while saving each month for a deposit. If, however, you can afford to buy — now is a great time (read ’Just do it!’).

“Now is a good time to buy,” says Clarke. “There is a lot of stock available and sellers are more willing to negotiate with their prices than they were a year or two ago. We are expecting the market to turn towards the latter part of the year and therefore the old adage still rings true — buy low, sell high.”

How long do you plan on living in the home? If you move shortly after buying, you will lose money. It could take a few years for the value of your house to appreciate enough to cover all the costs involved in buying and selling your house.

It’s hard to say how long you need to stay in your house to make the purchase worthwhile, but currently it would probably be at least three to four years.

It’s also worth thinking about your needs a year or two down the line. A one-bedroom flat might be fine for a young, married couple starting out in life, but what if you’re planning to have a baby?

“Furthermore,” says Clarke, “keep in mind that the property market is currently stabilising. This means that the days of high and quick returns when investing in property is over. Get into the market as soon as possible, but take a long-term view when it comes to return on investment.”

Can you afford to get on the property ladder?

Are you in a good financial position? Do you have a lot of debt? Do you have to borrow everything you need in order to buy? For a first time buyer, being conservative when answering these questions is prudent. You need to feel comfortable.

Talk to a lender and use one of the many ‘home affordability’ calculators that you’ll find online.

A useful guideline is to not spend more than 28 percent of your gross joint income on housing. Also, your total debt load shouldn’t exceed 36 percent of your gross joint monthly income. This is, however, only a guideline and each person’s situation is different. Depending on your assets, job potential and other factors you might be able to afford more.

The amount you qualify for is the maximum that the lender believes you can afford to pay back. Resist taking everything you qualify for. Remember, there will be many costs that you might not think of now, but will incur. These might include things like carpets, sofas, tools, etc. Also, did you consider how much your electricity, water, levies, etc. add to your monthly expenses?

Knowledge is power!

There is a wealth of information on these pages as well as links to useful resources such as iafrica.com’s ‘Property Search’, which is the largest property search portal in South Africa, and the ‘Property Price Index’, where you can determine exactly how much a property is worth. You can also keep up to date by subscribing to the free property and personal finance newsletter, ‘Your Money’.

Save for a deposit

Most first time buyers don’t put much down as a deposit. However, by first saving up 10 or 20 percent for a down payment, you’ll not only be under less financial stress, you’ll also qualify for a lower interest rate.

A 32-day notice account is risk free and has a decent interest rate. It also helps that you can’t easily access your funds.

Two is better than one

If you can, buy with a partner. Be it a friend, colleague, girlfriend or spouse — by sharing costs the bank will view you as a better risk and you’ll get a better interest rate.

Many first-timers can’t afford property on their own, but can do so with a partner. You have to be careful, though. If you’re buying with, for example, a boyfriend what will happen if the relationship ends?

Draft a contract that states each party’s obligations and what they have paid.

A bird in hand is worth two in the bush

Prequalify your mortgage before you go home hunting. Choosing the right property is a daunting task, but obtaining a mortgage is often an equal hassle. A lot will depend on how prepared you are and if you’ve selected a competent lender.

Why secure your mortgage before you start looking for a house? For starters, you’ll know exactly how much you can afford, saving all the parties involved in the transaction lots of time and hassles. The fact that the agent knows exactly how much you can afford will enable her to be more efficient and she won’t waste energy looking for and showing you houses you can’t buy.

The most important reason for getting your home loan preapproved is that it strengthens your bargaining position with sellers. If you were the seller and there were three offers, but only one has been prequalified, which would you prefer? Knowing that your offer is secure places you in a position to undercut other offers that might still require approval.

Get your ducks in a row

The approval process will be much smoother if you have the necessary documents with you when you first approach the mortgage provider. Begin by gathering your income tax returns from the last few years (this is especially vital if you’re self-employed), copies of your payslips, a copy of your credit report and bank statements from the last few months. If you make or receive any other large payments, like child support, these should be included as well.

If you’re self-employed you’ll need a host of additional documentation including a letter from your auditor or accountant confirming your income as well as all your latest financial statements.

A fixed or adjustable interest rate?

The main advantage of fixing your rate is, obviously, the certainty it provides. Budgeting is a cinch and an unexpected rise in rates won’t suddenly make your mortgage unaffordable.

On the other hand, it is worth noting that the lender will fix the interest you pay at a higher level than the prevailing rate and should the prime rate drop you will continue paying your original rate.

If you don’t require absolute certainty it is almost always better and cheaper to choose an adjustable rate. Lenders offer to fix your rate at a level that ensures they beat the variable rate most of the time. By opting for an adjustable rate your initial rate will be lower and you can take advantage of any further lowering.

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