Too often, people rush into homeownership because it’s seen as a sign of adulthood and financial responsibility. With interest rates at an all-time low, the messaging seems to be encouraging this type of purchase. However, the housing market in Namibia continues to out price the income of the majority of the young workforce and shows no signs of slowing down.
Purchasing a home can be challenging for most first-time buyers. There are many moving parts to consider, so many steps, tasks, and requirements. Most people only learn about these many moving parts and the costs involved once the transaction has begun. Before one embarks on this expensive route there are a few things to consider and prepare that can aid in making your first home buying experience painless.
Save more than just the deposit
A common mistake a lot of first-time homebuyer make is not knowing and budgeting for other costs that arise when purchasing a home. Aside from the recommended 10% deposit, there are a few other costs that spring up during the sale.
Consider the following costs:
Bond transfer costs consist of a few amounts that are charged by a conveyancer or attorney to register ownership of the property at the deeds office. These include transfer duty, stamp duty, Deeds office fee and estate agent commission.
Bond registration costs are charged by the bank that is financing the purchase to register the mortgage bond at the said bank under your name. This includes stamp duty, conveyancer fees, bank admin fees, Deeds office fees and valuation fees.
The rule of thumb is to budget at least 10% of the value of the property as well as the 10% deposit, to be able to afford the total bond registration costs.
To provide relief to first-time homebuyers the Bank of Namibia exempted the requirement to pay a 10% deposit in March 2017. This means banks will provide a home loan to first-time home buyers and they will not be required to pay a deposit. However, if one has the means to do so, they should save for and pay the 10% deposit because it reduces the monthly repayment and interest charged.
Buy for less than you are approved for
As a general rule, your total monthly repayments should not exceed 28% of your gross monthly income. The mortgage-to-income ratio (AKA front-end ratio) can be ascertained by dividing an individual’s anticipated monthly mortgage payment by their monthly gross income. To get an accurate picture of the full expenses that go into homeownership, always include rates and taxes, levies, mortgage protection cover and property insurance, when accounting for monthly repayments.
First-time buyers’ relief programs and high mortgage approvals are helpful but don’t overlook the true measure of home affordability: monthly cash flow. Banks may give a preapproval amount which is higher than your actual affordability. This not should guide your budget, a bond is a 20-year commitment; underestimating its impact on your finances could be detrimental.
Strengthen your credit score
A very important factor which is often overlooked is the credit score. Your credit score determines whether you qualify for a mortgage and affects the interest rate banks offer.
Your credit score indicates to a bank whether your past debt repayment behaviour will make you a good risk or not. A low credit score is classified as very high risk, and chances are the home loan application will be rejected as the banks will question your ability to pay them back. A good credit score will have the opposite effect, possibly opening the way to negotiating preferential terms and interest rates.
With the above in mind, although renting for life is not what most people dream of, there is much to be said about people who know how far their money can get them and choose to “stay in their lanes”. Living within our means or even better below our means shows a true understanding of money.
If buying a property is still a faroff dream, it is smart to start planning for it now to avoid jumping into financial obligations that cannot be honoured in future.
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