5 Money matters to manage before buying your own home

Owning property is a major aspiration for many people. However, it's crucial to remember that purchasing a property should be more than just chasing a great deal—your personal financial situation plays a key role in this decision. Before diving into the property market, make sure to address these five financial aspects to ensure you’re fully prepared for this significant, long-term commitment.

1. Have you truly assessed your budget?

Your income and expenses shouldn’t be a surprise to you. Being aware of every cost empowers you to budget properly - and sticking to your budget will play a big role in reaching your financial goals.  Before buying a new home, it’s important to assess how much of an impact the cost of repaying a bond will have on your finances and your standard of living.

Another point worth keeping in mind when assessing your budget is the changing interest rates. If the South African Reserve Bank decides to change the repo rate and your monthly repayments are higher than the month before, will you have enough of a buffer to absorb the costs or will you be in a dangerous financial position? You will also need to keep an eye on any other debts that you have that will be affected by a higher interest rate, as they will also increase.

Here is how to prepare for rising interest rates

2. Do you have an emergency fund?

Unexpected emergencies that affect your finances happen. But your home loan repayment will still have to be paid, so you need to be prepared. Access to funds that won’t incur debt will help to keep your budget on track. The rule of thumb is to save 3-6 months of your gross monthly income, and this can act as your emergency savings.  Owning a home is sure to come with at least one unexpected expense at some point from plumbing to electrical repairs, or general maintenance costs. Your insurance needs to be in place, but this isn’t the same as an emergency fund – it’s an additional, essential expense.    

3. Can you afford insurance?

Bonded properties tend to come with building insurance, but it’s still an extra expense and will usually be for the structure only. This won’t cover all your belongings, which require separate cover, and you may want to purchase life insurance to cover the cost of the bond if anything should happen to you or your partner. These are not nice-to-haves, but they certainly need to have a place in your budget.

4. Do you have retirement savings?

Buying a home might be part of your retirement plan, but you need retirement savings as well. Some believe that they can retire after getting the proceeds from selling their home and downscaling at retirement, but this is a high-risk strategy as it’s difficult to predict property values in the future.

At the point of retirement, you’ll need as little debt as possible to help retain your standard of living –  it’s often the case that the income that you draw in retirement will be less than what you earned while still employed. When contemplating buying a new home, make sure the repayment period doesn’t overlap with your retirement years.

You are more than likely to need retirement savings separate from any property investment. Small contributions to your retirement savings can add up, but shouldn’t be forgone in place of home loan repayments. In the perfect scenario, you will have these funds already growing as you grow into your new home.

5. Do you have a long-term mindset?

Property is typically considered a longer-term asset class. It’s generally going to take patience if you are hoping to earn a return. Some investors look to buy physical property with the aim of “flipping” it for quick resale and profit, but this requires extensive capital, time, and a bit of luck. There are listed property investment options as well, which give investors exposure to property without having to assume the same level of risk as owning property directly.

Navigating the current market

For first-time buyers, navigating the current market requires careful financial planning and consideration of various funding sources. Here are some practical tips:

1. Explore all financing options: Beyond traditional home loans, consider government subsidies like FLISP. Understand the terms and risks associated with each option. 

2. Save aggressively: Even though saving for a down payment can be challenging, creating a disciplined savings plan can make a significant difference. 

3. Seek professional advice: Consult with financial advisors and real estate professionals to understand the best strategies for your situation. It is also advised that you speak to a home loan expert who can not only help you get a clear picture of what your credit score is, and what you can do to improve it but can also help you see what kind of loan you might be able to qualify for.

4. Monitor market trends: Stay informed about interest rate changes and housing market trends to make timely and informed decisions.

5. Budget wisely: Ensure that your housing budget includes all associated costs, such as property taxes, maintenance, and insurance. Here are the hidden costs of home ownership that you need to understand before buying your first home

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Securing a favorable interest rate can make a significant difference in the overall cost of your loan and your ability to manage monthly repayments comfortably. Get our home loan experts to help you apply and secure the right home loan for you!