Additional costs to consider when buying a home! (Updated 31 Jan 2023)
After reading this article you will know:
- What the costs are to consider when buying a new home
- Why do you pay these costs
- And how to provide for these costs
When buying a home there are a couple of additional costs that home buyers should consider. People often refer to these as “hidden costs,” but they’re not truly hidden. These costs often catch buyers off guard because they lack awareness, leaving them in an uncomfortable situation. You must pay these costs before registering the property in your name.
So, let’s have a look at what these costs are:
- The most common cost to consider is the deposit. Some home buyers are lucky to get a 100% home loan or even a 105% home loan but depending on the bank’s risk appetite (which is dependent on so many factors), they will only approve 90%, 80%, or sometimes only 70% of the total cost of the property.
- This means if you are buying an R1 000 000 home and the bank has approved you for an 80% loan (in other words, only R800 000 of that R1 000 000), that means you’ll have to come up with an additional R200 00 for the deposit. For many people, this comes as a surprise as they did not save up for that deposit. Let’s face it, not many people can save R200 000. Be mindful of this possible expense. One way of potentially getting around having to pay a deposit, and qualifying for a 100% home loan, is to ensure that your credit score is good to excellent.
- [You might like ‘The benefits of applying for a home loan through a bond originator]
The conveyancing fees
- The next big cost to consider is the conveyancing fees. Two sets of attorneys are splitting this cost, The transferring attorney and the bond attorney.
- The transferring attorney ensures the legal transfer and registration of the property in your name. The buyer pays for the service of appointing this attorney, though the seller usually selects them.
- The bank appoints the bond attorney to register the granted bond. The law society determines the fees for these two sets of attorneys, and there is no fixed cost.
- The conveyancing costs are dependent on the purchase price and the property. Law firms may vary in the amount payable, even though the law society sets a specific amount.
- There is a great App that you can download. It is called Ooba. It has a range of home-buying calculators. One of these calculators calculates the bond and transfer fees for you. This way you can know upfront what the amount is that you should take into account for conveyancing fees.
- The third cost to consider before a property can register in your name is the transfer duty.
- This is the tax that is payable to SARS. The good news is that in South Africa if you buy a property for R1 000 000 or less, you are exempt from paying transfer duty.
- You do not have to pay transfer duty, also known as property tax. So, in our example of R1 000 000, there will be no transfer duty payable on the property.
- However, transfer duty is payable on a sliding scale for anything over R1 000 000.
- This means the higher the price of the property, the higher the amount of transfer duty that you must pay.
- When you download the Ooba App and calculate the bond and transfer fees, the transfer duty will also be included in the calculation.
Here is a transfer duty sliding scale:
As you can see, the higher the purchase price, the more transfer duty (tax) is payable to SARS
Value of the property
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 above R10 000 000
Transfer duty is not payable when you buy a property directly from a developer
- Another important point to remember about transfer duty is that it is not payable when you buy a property directly from a developer.
- The developer’s VAT registration would typically include the VAT amount, which would become part of the property’s purchase price.
- When you buy a property directly from a developer, the VAT is included in the purchase price and becomes part of your home loan, eliminating the need for additional costs associated with transfer duty.
Postage and petties
- Both the transferring attorney and the bond attorney charge a levy for postage and petties.
- To be safe, budget around R5 000 for these levies, as they may vary between law firms and are typically a small amount.
Charges by the deed’s office
- Once the transferring attorney has put together all the documentation, to transfer the property from the seller’s name to your name, he submits everything to the deed’s office.
- The deeds office is the last step in the ownership registration process.
- Once it goes to the deeds office you can be sure that it will only be a couple of days before the property registers in your name.
- However, the deeds office also charges a small fee for the registration of the bond into your name. Again, this may vary but to be safe you may want to budget approximately R5 000 for these fees.
- The transferring attorney will charge this amount and ensure payment to the deeds office.
The home loan initiation fee
- The bank charges the home loan initiation fee to process the transaction, which is typically added to your home loan amount.
- It’s crucial to be aware of this cost, but you won’t need to provide upfront money.
- Some banks charge a flat rate while other banks will charge a base rate plus a percentage.
- The maximum initiation fee is normally around R5000 or R6000.
- This amount is added to your home loan, so you don’t have to budget for it upfront, as previously mentioned.
- However, if you prefer, you can decide to pay the initiation fee upfront.
- If you move into the property before it registers into your name, the seller will require you to pay occupational rent.
- This is normally at 1% per month of the total sales price.
- In other words, using our example of R1 000 000, you’ll pay R10 000 occupational rent to the seller for every month that you stay in the home while the property is still in the seller’s name.
- I strongly recommend that you move into the property only after it registers in your name.
- Don’t risk being in the property if the transaction is delayed or falls through.
- Lastly, you want a budget for the use of a removal company that will move your belongings from your current home to your new home.
- The number of belongings you want to move, the distance you’re moving, and the complexity of the move (such as carrying items up three flights of stairs) will determine the variation in services required from the removal company.
- This can be a very costly exercise, so you may want to get three quotes from three different removal companies way ahead of time so that you have an idea of what this will cost you.
- The great thing about having quotes up front is if you need to start saving for the move you will at least have two or three months to do so.
Before moving into your property, you must pay a lot of upfront costs associated with purchasing it. The idea is not to scare you. Yes, it is not great to read about all these costs, but at least now you know, and you can plan. The power lies in clarity, and being forearmed through forewarning is a key to preparedness.
Enjoy your new home.
Updated: 31 January 2023