You’ve finally found the property you want. Your bank says your chances of being approved for a mortgage loan are good. You’ve even saved up a 10 % deposit in case this is required. You’re happy, because you’re now ready to sign the offer to purchase.
Before you sign however, do you know what other costs you need to pay when purchasing property?
Buyers rarely take the time to find out the details with regards transfer fees and bond registration costs. They are often caught off guard when they receive invoices from different attorneys involved in the transfer and registration process of the property.
Transfer and bond fees
Confusion often arises between the buyer and the seller as to who should bear the transfer duties. That’s why it’s a good idea to ask your property agent or attorney to obtain a written quote for these fees, so that you will know exactly what you are liable to pay.
Buyers are not only responsible for paying transfer duties. They will also need to pay the bank a bond registration fee once the loan application has been approved. This often needs to be paid days after all necessary documentation has been completed and signed by the buyer.
In addition to these costs, a bank initiation fee is required, which can range from R1 000 to R6 000, depending on the loan amount and the banking institution you are applying with. Fortunately, if a buyer is unable to pay the initiation fee in full, he can arrange to have this included in his bond repayments.
Buying property is an expensive affair. To help encourage home ownership in South Africa, our previous Finance Minister, Pravin Gordhan, announced in his 2017 Budget that buyers who purchase property less than R900 000 will no longer have to pay transfer duty. One and two bedroom sectional title units have become very popular for investors and first time home owners. Discuss this with your property agent or a property conveyancer beforehand, and keep in mind the location in which you want to buy. Location of property plays a big role.
Deposit payments and loan criteria
Your deposit is not there to pay the extra costs involved in purchasing property. It is to secure the purchase of the property you want to buy. Banks currently only grant 100 % mortgage loans for clients with exceptionally good credit profiles.
There are certain reasons why they would grant a lesser amount or decline the application completely.
- If the buyer has a Less than perfect credit score
- The bank area exposure has reached its limit
- Property condition and property location
Let’s say for example, a buyer qualifies for an amount of R650 000 according to the bank. The buyer goes out and finds a property and signs the offer to purchase. The bank only grants him a loan of R600 000. The reasons – condition of property and location.
Is it avoidable? No not really. What you can do though is get as much information about the property and the location as possible. Speak to your agent or a conveyancer. They can give you good advice based on their profession, knowledge and experience.
When applying for a mortgage loan, buyers should not only apply with their own bank. It’s advisable to also approach other financial institutions to make sure you receive the most competitive offer on interest rates.
Municipal rates and taxes, levies
Buyers need not worry about this. It is the seller’s responsibility to pay these costs three months in advance to obtain a clearance certificate. In other words any outstanding municipal rates and levies must be paid by the seller until transfer of ownership has taken place, i.e. until the property is lodged and registered at the deeds office. Thereafter, those fees will be the responsibility of the new property owner.
If the property registers earlier for example in month two, the attorney will need to obtain the last month’s rates and/or levies back from the buyer (pro rata).
Knowing and understanding the different costs involved will create a much clearer picture from the beginning, and avoid any delays and disappointments for both the buyer and the seller. Buying property is a long term commitment, and should not become a financial burden for anyone under normal circumstances.
Make sure you have all your facts and figures before you sign the offer to purchase.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)