The importance of financial planning for first-time home buyers

Are you considering becoming a first-time homebuyer? It's an exciting venture, but one that requires careful planning and a clear understanding of your financial capabilities. Think about it: Do you know what you can truly afford when it comes to mortgage repayments each month?

Before even setting foot in a property viewing, you should objectively analyze your financial position. It's not uncommon for first-time homebuyers to underestimate the financial commitment that comes with owning a home. Sound daunting? Rest assured, with the right planning, it can be a smooth and successful process. 

Plan for Future Interest Rate Hikes

Consider the potential for future interest rate hikes. Even when it seems that the interest rate will remain stable, there's no guarantee that rates won't rise again. To protect yourself, we recommend making an allowance for future rate increases. As a rule of thumb, set aside at least 1% or R100 for every R100,000 borrowed from your lender. This buffer will provide a safety net and ensure you don't overextend your finances.

Determine Your Affordability

To understand what you can comfortably afford, take advantage of online affordability calculators or consult with a bond originator for a more precise assessment. Bond originators can also help you improve your creditworthiness, ensuring that you have the best chance of securing a loan from the banks. Before applying for a bond, focus on reducing or eliminating debt and store credit accounts, reevaluate insurance policies, and maintain a clean credit record with no late payments for at least six months.

Prioritize Location and Property Features

Once you've assessed your affordability, it's time to start searching for a property. The location of your future home is crucial, as it directly influences its potential for value appreciation. Consider proximity to amenities like shopping malls, medical facilities, schools, and major transport routes. Additionally, a north-facing property is generally preferred, and other aspects to ponder include room for improvements, extensions, and renovations.

Look out for properties with pre-paid electricity meters and solar installations to reduce your energy costs, and ensure you're making a sustainable choice for the environment.

More here on how to prioritize your needs over you wants when buying a home

Thorough Property Inspection

Before making a final decision and signing an offer to purchase, it's essential to have the property inspected for major defects. Pay close attention to the condition of the roof, structural cracks in load-bearing walls, sagging floors or ceilings, and damp walls. By thoroughly assessing the property's condition, you can determine whether necessary repairs are manageable within your budget. If the property requires extensive work, it may be wise to walk away from the deal.

Additional Costs to Consider

As you transition from a tenant to a homeowner, there are additional costs to keep in mind during the transfer process. These costs include bond costs and transfer fees, with transfer duty typically being the largest expense. You'll also need to budget for attorney fees, as the seller appoints the transfer attorney, while the bank selects the bond attorney. Moreover, anticipate monthly expenses such as rates, water, and electricity, along with the costs of services, insurance, maintenance, and furniture removal.

Take Your Time and Make Informed Decisions

The importance of taking your time and making well-informed decisions can't be overlooked. Buying a property is a long-term investment with numerous advantages, but it's essential to approach it carefully. Rushing into homeownership without considering your financial readiness can lead to financial stress and vulnerability.

By planning for future interest rate hikes, assessing your affordability, prioritizing location and property features, conducting a thorough property inspection, and accounting for additional costs, you'll be better prepared to embark on your journey as a first-time homebuyer. Remember, owning a home is a significant milestone, and when done right, it can provide security and financial stability for years to come.