Master of Money Management

How to get your own home without eating mac and cheese for a year

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Home ownership is most definitely on the wish list of most individuals, unless you are a hermit and prefer damp caves over man caves, you either own a home or want to own a home. With the cost of a small flat tipping the scales at anywhere from R400, 0000 to name your price, the deposit on even a small pad is a challenge. With so many other things vying for a slice of our budgets, getting a deposit together may seem like an impossible task.

One of the biggest obstacles to saving for a home is short-term debt. If you have enough clothing and retail accounts to rival a small country’s GDP, it’s time to take some remedial action. People often underestimate the impact of retail debt on their ability to save and get ahead. Many people lament about their car payments but if they took the time to add up clothing, furniture and electronics repayments, they would be more than a little shaken to find that cumulatively their accounts exceed their car instalments. The problem with this kind of debt, it that it is expensive and pervasive. We tend to roll over credit on retail accounts indefinitely and end up paying our underwear off over 5 years.

So you need to get rid of this type of debt. It’s not difficult if you put your mind and fast food money to the task. Choose your smallest debt, let’s say it’s R300 per month and try to double the payment. Once that is settled take the R300 you found from missing the Fast Food Emporium on the way home,  add it to the payment you have saved and pay it towards your next biggest debt. Let’s say this debt is R600 per month. Once you have paid that off, you will have R1200 to hit your big bills with. Before you know it you will be doing a happy dance. Getting rid of small debts also improves the score on your credit rating, so you win all round.

Once your finances are lean and mean, work out what you can realistically afford to pay on a bond. Don’t just look at the bond repayment; factors such as rates, maintenance and home insurance must be added into the equation. Ideally your bond repayment should not exceed 30% of your monthly income”. Home insurance will be a requirement when you take on a bond and you will need contents insurance to cover all the new stuff you will be buying. The good news is that it is relatively cheap, especially if you team it up with your car insurance.

It is a good idea to talk to your bank manager to help you work out how much you can afford and ask for pre-approval. If you have a pre-approved loan it will give you more bargaining power because the seller and the agent will know that you are a serious buyer and not someone who just likes home snooping.

Remember that you must also take into account the transfer duty and Lawyers fees when you are saving, these can amount to approximately 15 % of the purchase price.

Only start looking for a house once you’ve saved the deposit, if you go house hunting before you are ready, it can only end in tears if you find your dream home before you can afford it. Give yourself time and adopt a measured approach, emotions can get the better of you and you may make the mistake of buying a property you can’t afford. If you have a good credit record and a good relationship with your bank you may be able to get a 100% loan, however you will be charged a higher interest rate for this.

When you are ready to go on the hunt it is vital to stick to your price no matter what the agent shows you. Estate agents tend to show you properties outside of your price range and of course, you are going to fall in love with the house that is R200,000 on the wrong side of your budget. The more expensive the house, the more commission the agent makes. If you beg, steal and borrow in order to buy a more expensive house, you leave no margin for error if interest rates go up, or if you experience a financial emergency. Your first home will almost never be your dream home however, as you earn more money and pay off your first home, you will eventually get to the point where you can buy the house you want, rather than the one you can afford

Getting a foothold in the property market is a very important step to building wealth, once you are in the property market, it becomes easier to upgrade to better home because you can use the appreciation to keep moving up. Owning your home is definitely worth tightening your belt for, at the very least you will be able to kiss grumpy landlords goodbye and you’ll have a permanent home for your pink flamingo sculptures.

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