Not everyone has a huge income or savings to help them buy their first home.
Most people are able to take a substantial bond loan to buy a property but often battle to pay transfer and bond costs that can be up to eight percent for a more expensive home.
But where can this extra money be found?
There are various ways to get the money that you need.
Firstly, if you do not want to ask for outside help you can look for a personal loan.
Buying a R1 million home, you will require cash to pay for bond and transfer costs of about R50 000.
At this level there is no transfer duty which would amount to an additional eight percent on a R2 million house or higher.
Even R50 000 is quite a substantial amount to find in order to put your new home into your name.
Sometimes you can get the bank to grant you a five percent higher bond than the purchase price and use the extra amount to get the home in your name.
In this case the bond and transfer costs would be included in your bond and paid off over 20 years.
Alternatively, you could take a private loan for the same amount of R50 000.
Here, the interest rate will definitely be higher than 15 percent instead of eight percent and the loan will have to be paid off over a short period of 36 to 60 months.
It would mean that you need to pay off your bond payment and your loan payment.
This can be quite expensive but worthwhile if this is the only way you can buy your dream home.
Just make sure that you can afford it.
Over five years, this would mean an additional R1 200 per month on top of your bond of R8 400.
At the end of year-five you will drop down to your normal bond payment.
The quicker you can pay this extra loan the better.
Remember every bit extra that you pay comes off your balance and the quicker you pay it off, the cheaper the loan becomes.
Borrow from friends and relatives – not always something that you would like to do but a necessity.
It can actually be quite a good investment for them if you pay on time.
You would need to agree to an interest rate but even eight percent would be more than they are currently able to get in any bank.
Just make sure that they do it legally as there are some rather silly laws about lending money to people – check with an attorney.
A more secure way would be to arrange with your bank that your friend or relative invests into your bank and on the strength of that five-year investment, the bank lends the money to you.
They will handle all the legal aspects.
This means that they have your friend’s or family’s money as security against your loan.
The most popular is to borrow money from your parents or parents-in-law.
Quite often parents expect their children to ask them to help them buy their first home.
Parents often put money aside to help but are shy to offer.
They are afraid to embarrass their children.
Sometimes parents have the entire price to buy the home and are happy to donate the money or at least the deposit or bond and transfer costs.
I however suggest that you speak to your attorney to avoid donations tax.
Parents often have money that they can lend their children to buy their first home rather than investing it in a bank.
They just need to get a similar return to what they would have gotten at the bank.
Every effort should be made to pay the money back on time, though from my experience it often happens that parents donate the money back to their children at the end of the day.
Yes, there are various ways to get the money that you need.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.
