Buying a house, a townhouse or even a flat is probably the single biggest investment you will make in your lifetime! And if you consider that 90% of people end up financing their homes over 20 years, it’s safe to say that homeownership costs a lot of money. Outside of your long-term bond repayment commitments, what other costs are associated with buying your dream home?
The easiest way to break down the costs is to group them into 3 categories:
- The initial costs involved with the purchase
- The costs involved before ‘move in’ day (like paying a municipality deposit)
- Essential insurance costs
In this blog post, we are going to focus on the initial purchase costs and follow it up with another article that will dive deeper into other costs you probably haven’t factored into your calculations – like getting set up and ready to move into your home and insurance you need to take out as a homeowner.
Let’s start right at the beginning of the purchase process. You might have found your dream home, but if you are looking to finance a house you are going to need to come up with a substantial deposit (especially if you are a first-time buyer).
How much will you need?
That largely comes down to the amount you are looking to borrow and the credit provider’s specific lending requirements. Most banks will probably insist on at least 10% of the purchase price as a deposit if you are a first-time buyer. That means if you have your eye on a spot worth R1 000 000 you will probably need to have saved as much as R100k, which will be paid over to the transferring attorneys.
NB: If you wanted to save up R100k in four years, you would need to invest R2000 per month with an increase of 9% per annum and get a return of 8% per annum.
Creditor Admin Fees
How much is your bank allowed to charge you to access their money?
In addition to the interest charged on the money that you need to borrow, your credit provider can charge you a once-off initiation fee which legally cannot be more than R5250.
If you don’t have the cash on hand to pay the initiation fee, the bank will roll the charge into the credit facility and allow you to pay it off. Just a word of warning – if you decide to do that, your R5000 might end up costing you R13 000 by the time you have paid it off over twenty years.
This is a major outlay of money and something you really need to factor into your budgeting. In simple terms, Transfer Duty is a tax the Government levies against all properties that are transferred from one owner to the next (from the seller’s name into the buyer’s name). Properties below the value of R900 000 are exempt from Transfer Duty and the amount of duty is based on the sale price of your property. The more your property is worth, the more duty it attracts.
Below is a Transfer Duty table based on current SARS tax year (1st March 2019 – 29 February 2020)
If you use the previous example of a property worth R1 000 000, let’s work out how much Transfer Duty is payable. The first R900 000 of the value of your property is exempt from Transfer duty, so the calculation looks like this
- R900 000 x 0% = R0
- 3% x (R1 000 000 – R900 000) = R30 000
In this example, it’s just R100 000 that attracts duty at 3% or R30 000
|Value of the property||Rate|
|R0 – R 900 000||0%|
|R900 001 – R1 250 000||3% of the value above R900 000|
|R1 250 001 – R1 750 000||R10 500 + 6% of the value above R 1 250 000|
|R1 750 001 – R2 250 000||R40 500 + 8% of the value above R 1 750 000|
|R2 250 001 – R10 000 000||R80 500 +11% of the value above R2 250 000|
|R10 000 001 and above||R933 000 + 13% of the value exceeding R10 000 000|
Conveyancer Fees – Transfer & Bond Registration
When it comes to property transfer costs it’s not only the Government who stands to make some moola out of the deal. Transferring the ownership of a property is legal work which requires the input of an attorney. Transferring Conveyancers’ fees are paid to get your property into your name. The same set of legal eagles will also get your bond registered with the Deeds Office.
The good news is that the Law Society has some guidelines in place on how much this should cost. On a R1 000 000 property, a once-off payment of approximately R10 000 will be due to the registering attorneys.
Deeds Office – Registration Fee
Yup, you guessed it. The Deed’s office will also charge a fee of their own when registering your bond. The good news is that the fees are fixed and based on the value of your home loan. If we work on the R1 000 000 example, that means the fee comes in at R1098.
- R 150 000.00 and below the fee will be R376.00.
- R 600 000.01 – R 800 000.00 the fee will be R852.00.
- R 1 000 000.01 – R 2 000 000.00 the fee will be R1098.00.
- R 4 000 000.01 – R 6 000 000.00 the fee will be R1846.00.
- R 10 000 000.01 – R 15 000 000.00 the fee will be R3057.00.
- R 20 000 000.01 – R 30 000 000.00 the fee will be R4278.00.
And that basically takes care of the major purchase costs associated with a new house. As a buyer you have some consolation, knowing that the seller picks up the costs associated with marketing the home.
Do you have any comments? Feel free to leave them below.
Look out for our next article where we will cover essential insurance you will need as a homeowner and the costs involved leading up to the ‘move in’ day.
Until next time.
The Wise About Life Team