Buying a property and becoming a homeowner is a dream for many South Africans. Yes, it’s a big expense and responsibility. So, we’ve come up with 5 questions to ask yourself to help you decide if you’re ready to buy, or if renting would be a better option right now.
The main differences between renting and buying
Before you ask the questions let’s look at the differences between renting and buying.
- You pay rent, as well as the electricity and water you use, and usually services like security and garden maintenance
- You don’t pay for repairs, such as fixing a leaking tap or a leaking roof
- You don’t pay levies, rates and taxes
- You do need to keep the place neat and tidy, and not cause intentional damage
- You can’t make any alterations without the owner’s permission
- You should have a rental agreement that covers your behaviour in the property (for example don’t make a lot of noise, keep it clean), the amount of rent you pay plus any deposit or extra costs you are liable for, and the term of the lease (how long you rent for), and how you give notice or renew
- You own the property!
- You are responsible for all the costs and upkeep
- You can of course choose to alter the property
- When you sell, you might make a profit. Remember, that selling a home can take some time, especially if the economy is tough, and property prices don’t always increase
Here are the questions to ask yourself when you are deciding if you should buy or rent.
Can I afford to buy?
When you buy a property you need to consider the purchase price as well as all the transfer costs. These additional costs could easily be R50 000 or more. If you’re buying, you’ll also want to put down a deposit. Which means when you buy you need cash, for example R100 000. When you rent, you’ll probably need the first month’s rent, plus a deposit of a month’s rent which could be around R10 000 – R15 000, depending on your monthly rent. Not all of us have the cash we need to buy, so renting may be the only option.
Do I qualify for a home loan?
Tied to the above question is how you pay the purchase price. Let’s say you buy a house for R850 000 and put down a 10% deposit. You still need to finance the remaining R765 000, which means you need to apply for a home loan and be approved. This means your financial life will be examined very closely.
Your bank or home loan provider will need to check your credit record to see how you have dealt with debt in the past, and that you have a steady income. They also need to check your expenses so they can see if you will be able to pay the monthly instalments on the home loan. If you don’t have a lot of spare income after meeting your expenses or have a poor credit record, you may not qualify for a home loan. In this case buying isn’t an option.
Will I have enough to pay all the maintenance costs?
Ask any homeowner – keeping your home in good condition costs more than expected. Whether it’s upgrading security, fixing the roof or solving plumbing problems, you will need extra funds for repairs and maintenance if you buy your home. Many homeowners have an emergency fund they use for the unexpected expenses and budget annually for one large home maintenance project.
Can I commit to a house for at least five years?
Because the initial cost of buying a property is so expensive you really don’t want to move too often. If you do, you could lose money. So, you need to commit to staying in the house for at least five years, preferably more.
Your different life stages will affect your choice of house and area. The cool loft in a funky area might be great now but might not be ideal in five years’ time when you have a long-term partner and are expecting a baby. Other things that can affect this decision include where you work, proximity to schools (now or in the future), and where your extended family members are.
If you have to move to different locations for work, or you dream of living in a far-flung city, owning a home may just not be practical. Renting is flexible, and you can move in and out quickly with little fuss.
Can I afford to buy in the area I want to live in?
You’ve probably checked out the neighbourhoods you like and considered things like good schools, security, nice vibe, and access to transport. Even if you can’t quite afford to buy in the area you want to live in, you might afford to rent there. Rental is often more affordable. Remember a renter pays rent, electricity and water, and is responsible for insuring their household contents. A homeowner has to pay the rates and taxes, any levies, general upkeep costs, security charges, deposit on the purchase price, transfer fees, building insurance and more. It adds up.
Buying is a long-term decision, and you may decide to rent while you look for a home you really want in an area you like. There may be times in your life where buying is the better decision, at other times renting will make more sense. Whichever option you choose, make sure you do your research – know the costs you will be liable for upfront and on-going – and you’ll be happy with your home.