How do I Purchase a Home in South Africa?
Buying a house can easily be one of the most exciting moments of your life… but it can also be the most stressful. While most people tend to focus on the ‘new beginning’ that they are about to embark upon, it’s important that you don’t underestimate the gravity of the situation. Property is oftentimes the most expensive purchase that you’ll make in your life. The loans you take out and the interest rates you agree to will probably form a major part of your finances for the next few decades, so it’s vital that you slow down and consider everything in the most pedantic detail. But how do you even buy a home in South Africa? What steps do you need to follow and what tips should you keep in mind? How do I Purchase a Home in South Africa?
Given the inherent size of the purchase, buying a home is going to be an unavoidably complex matter, but don’t be discouraged by this fact. There are some pretty simple steps that you can follow which will make this whole process a lot easier.
The Homeowner’s Manual
Take a look at a few guidelines that you may need before purchasing your very own home. These steps will provide you with the best & needed advice before you decide to purchase a home. It’s always good to be prepared!
The Home Owners Manual
| Determine your Budget – As tempting as it is to look for your dream house in your dream neighbourhood and hope everything works out on its own, it just isn’t realistic. A far smarter move is to work out exactly what your financial situation is like and go from there. Determine what you can afford and start hunting for homes that are within your budget. There are various bond calculators available online which can provide you with a good estimate of what you can afford. |
| Increase your Creditworthiness – Your credit score is one of the key factors up for consideration when you want to take out a loan. The better your score, the most favourable your loan will be. Individuals with a high credit score will generally receive better interest rates than others, a fact which could end up saving you a lot of money in the long run. To improve your credit score, you should try to develop a good payment history which means paying off debts on time and ensuring that you don’t have too much debt overall. |
| Build Up a Deposit – Banks are in the business of minimising risk. The more safe and stable you appear to be financial, the better your odds of being approved for an advantageous loan. If you can work up a decent deposit to put down on your house, you will have an easier time getting an affordable loan. Additionally, a deposit can shrink your bond which will end up saving you money on your interest. |
| Find a Home – Once your finances are in order, you can begin looking for your future property. There’s a lot to consider here so really try to take your time. Remember to stay within your budget and get a home inspection regardless of how good it all looks. It may also be a good idea to factor potential maintenance costs into your budget before committing to anything. At the end of the day, don’t panic too much. If you make a terrible decision you’ll probably only have to deal with it for the rest of your life. |
| Make an Offer to Purchase – If you think you’ve found the perfect place, sign an offer to purchase with the sellers. It may or not be accepted but, with any luck, the current owners will take you up on your offer. |
| Apply for a Home Loan – Here comes the hard part. You’ll need to approach a bank and see if they’ll approve you for a loan at a reasonable rate. Keep in mind that there are a lot of different lenders out there so you don’t need to accept the first option that gets presented to you. You’ll be paying this debt off for a long time so make sure you’re getting the best deal possible. |
| Transfer the Deed of the Property – Once you’ve received your loan and finalized the deal with the sellers, it’s time to wrap this up – legally. The final step involves transferring the property deed from their name into yours. This is a whole process on its own and it’s probably best to hire an attorney who specialises in this kind of thing to save yourself the hassle. That said, you are technically able to do it all yourself but it is quite intricate so make sure you do your homework if that’s the path you wish to take. |
Do you Need to Hire a Real Estate Agent to Buy a House?
No, you do not. You can buy a home all by yourself without the help of a realtor. This is an option commonly chosen by those who have some experience in the property market already or by people who are buying homes that are owned by family members.
However, if you do not fall into one of these categories, it would probably be a good idea to consult a realtor when buying a house as the process can be very difficult for a layman.
What Credit Score is Needed to Buy a House?
Although the exact number may differ slightly from bank to bank, for the most part, you will need a credit score somewhere between 600-650 if you want to be considered for a home loan. That said, if you can manage to get your credit score to 670+ you will drastically increase your chances of receiving a home loan.
If you have time to spare, it may be worth your while to raise your credit score before you commit to a home loan as a higher credit score will give you a better chance of receiving a more advantageous interest rate. Simply put, a great credit score can end up saving you a huge amount of money with regard to your home loans, and thus, it isn’t something that you should overlook.
Can Foreigners Buy Property in South Africa?
Yes, they can. Property in South Africa is available for purchase by foreigners, although loans do not exceed 50% of the property purchase price. One of the main reasons why foreigners choose to buy property in South Africa is the favourable exchange rate.
Individuals from wealthier nations are generally able to purchase property in South Africa for a relatively low cost which makes for an enticing offer.
In Conclusion – How Do I Purchase a Property in South Africa?
As with most countries, buyers in South Africa simply need to find a home that they like and make an offer to the owners to begin the purchasing process. If the offer is accepted, they can embark on the arduous journey of getting a home loan and completing all the legal work required for a deed transfer. All that said, there are many tips and tricks that should be noted if you wish to make a favourable purchase.
It is important for amateur buyers to first determine what kind of properties are within their price range as it doesn’t make sense to go looking for houses that you could never reasonably afford. Beyond that, you should also attempt to improve your credit score before approaching the bank for a home loan as a better credit score can dramatically increase your odds of receiving a loan while simultaneously giving you a better chance at getting a decent interest rate. It may also be wise to save up so that you can put a deposit down on the house, this has the effect of making you seem more creditworthy in the eyes of the lender while also shrinking your bond.
While it isn’t technically necessary to hire a realtor when buying a property, it is recommended as the process can be very complex and a realtor may be able to save you money in the long run. Additionally, buyers are advised to hire a home inspector to ensure that there are no hidden issues with the property. You should also factor any potential maintenance costs into your budget when determining your price range.
As mentioned, a higher credit score will result in more favourable loans and should make home loans easier to achieve overall. It is unlikely that a buyer will be able to receive a loan with a credit score under 600 points and it is recommended that you work to increase your score as much as possible before committing to a deal. Foreigners are also able to purchase property in South Africa, however, their loans will not exceed 50% of the purchasing price of the property.
Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.
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