The mountain of paperwork is finally out of the way. As you sit tallying up the money you’ve spent on securing your first home, you figure you aren’t going to get much change out of R150 000. It’s taken years to save up the money, and in less than six weeks your cash stash has been under siege by your bank and conveyancing attorney.
Now that the once-off purchase costs, like a deposit and transfer duties, are behind you, is there anything else you should factor in?
In this article, we are going to explore other initial homeownership costs that often fly under the radar, and unless you know about them (and have enough time to save for them) you could get caught out and not have enough money to pay the unexpected bills.
Let’s break these expenses down into 2 categories:
- “Move in” expenses
- Essential insurance expenses
The move into your home is the start of a series of extra expenses that you are going to need to cover. Yup, we are referring to the endless cardboard boxes that are labelled “Handle with care” and “Garage stuff” that need to be hauled across town.
Are you going to use a professional transport company, phone a friend, or do it yourself?
The temptation is to WhatsApp a family member or friend who owns a bakkie and flood your messages with suggestive emojis on the end of a baited hook that might look something like this – “It’s been ages! What are your plans this weekend? Did you hear that we’ve bought a new house?” 🙂
The strategy is to avoid paying a professional for the move. But how often does this work out for you? Seldom! If you do manage to solicit some help, it’s always under duress, and the party involved always feels like they’ve been coerced into lending a hand.
What might take a day ends up taking the entire weekend!
The “help” always bails early (can’t blame them) and you end up regretting not getting some professional help on the day.
We suggest that you jump online and get a few quotes from professional movers. Coughing up R10 000 is somehow better than blowing out your back or straining existing family relationships and friendships.
Now we need to get a move on to your utilities.
When you move into your new property, you need to factor in the deposit you have to pay to your municipality to get your electricity and water connected. This deposit is fully refundable if/when you sell your property, but it’s a cost worth budgeting for.
You may also need to pay your municipality as much as a 3-month deposit upfront for water and services – this can vary from one municipality to the next. Depending on the size of your new house, this could be anything from R5 000 – R10 000.
Then, of course, you have rates and taxes which are paid on a freehold property and can be anywhere from a few hundred to a couple of thousand Rand a month (depending on the value and location of your property).
Rates cover sewerage usage and garbage removal, while the taxes paid to your local municipality are based on the value of your spot (already mentioned above). The estate agent who has sold you your house would have given you an idea of what these costs are on a monthly basis.
While, not an initial cost, make sure to include them in your monthly budgeting.
If you are moving into a sectional title property like a townhouse, here are a few pointers when it comes to complex levies:
The trustees could ask for a levy deposit which works much like your utilities deposit. When you sell your property, you get the levy deposit back. Generally, this isn’t going to break the bank and might set you back the equivalent of one month’s levy payment.
Before you buy into a sectional title property, make sure that you get a copy of the annual financial statement from a trustee so you can check that the complex has a healthy surplus. If your complex doesn’t have money stashed for a rainy day there is a very good chance that when a special maintenance project comes up, like repainting all the units or resurfacing the tennis court, a special levy will be raised and divided by all the units in the complex. These “special levies” tend to arrive at very “special times” and can create a cashflow nightmare.
Moving onto essential insurance expenses.
If you are like 90% of first-time property owners in South Africa, you are going to finance your home with a bank. Until such time as you have paid off your property in full, the bank owns your property. The truth of the matter is that we only fully own the properties we’ve financed until our very last payment is made to the bank. As a result, the bank is going to insist that you have insurance in place to protect their interest in the asset.
How do they do that?
With building- and life insurance
As the name suggests, building insurance covers the physical structure of your home (the brick and mortar) against insured perils that include fire, water, wind and hail damage. The bank will insist that you have the insurance in place, but they aren’t allowed to insist that you take out the policy with them. The important thing to remember is that your property is insured for the correct amount.
Why do you need life insurance?
If you pass away, your outstanding bond can be settled with the proceeds of the life insurance pay-out and your family can live in a paid-off house. If you pass away and your family can’t afford to meet the monthly repayment obligations or they don’t have a capital amount available to pay off the bond, the bank will auction off your house and your family will not have a home to stay in.
Building insurance and life cover are the two essential insurances every homeowner needs to make sure they have when they sign on the dotted line with the bank.
Can we help you with a life insurance quote?
Have you moved into a new property recently?
Did we miss any initial expenses in this article?
Feel free to leave your comments below.
Until next time.
The Wise About Life Team.