Your home loan repayment is only one part of the true cost of owning a property.
Before deciding what you can afford, it is important to look at the complete monthly cost of the particular home you are considering, as well as how comfortably that cost fits into your life.
What does home loan qualification actually mean?
When a bank assesses your home loan application, it considers factors such as your income, expenses, existing debt, credit profile and ability to repay the loan.
If you qualify for a certain amount, it means the bank may be willing to lend you up to that amount, subject to its final approval and lending conditions.
That does not necessarily mean that borrowing the full amount will leave you with enough breathing room for your other expenses, priorities and unexpected costs.
The bank assesses whether you qualify for the loan. You still need to decide whether the full cost of owning that particular home will be comfortable and sustainable for you.
The bond repayment is not the full monthly cost
Once you own a property, you may also need to pay for:
Municipal rates and service charges
A body corporate or homeowners’ association levy
Building and household insurance
Electricity and water
Security or armed response
Internet and other household services
Garden and pool maintenance
General repairs and ongoing property maintenance
These costs will differ considerably from one property to another.
A sectional-title apartment may have a levy that covers certain shared expenses. A freestanding home may have no levy, but could require more spending on security, insurance, gardening and maintenance.
This is why affordability should be assessed against the actual property you are considering, not only the purchase price or estimated bond repayment.
Your bond repayment could also change
Many South African home loans are linked to the prime lending rate. If interest rates increase, your monthly bond repayment may increase as well.
A repayment that feels manageable today could place greater pressure on your household budget later.
It is therefore sensible to consider whether you would still be comfortable if your bond repayment or other household expenses increased.
Questions to ask before making an offer
Before committing to a property, consider asking yourself:
What will my estimated bond repayment be?
What are the current municipal rates?
Is there a levy, and what does it cover?
What are the likely electricity and water costs?
What insurance and security costs should I allow for?
What maintenance is the property likely to require?
How would an interest-rate increase affect my repayment?
Will I still have room in my budget for savings, emergencies and normal living expenses?
You do not necessarily need to buy for the maximum amount the bank is prepared to approve.
Choosing a home that leaves you with some financial breathing room can make homeownership far more comfortable and enjoyable.
Look at the property and the budget together
The right property is not only one that you like and qualify to purchase. It should also be a home whose complete ongoing cost fits comfortably into your financial life.
Before making an offer, take the time to understand the property’s likely monthly expenses and work through the figures carefully. If necessary, speak to a qualified bond adviser or financial adviser before making your final decision.
A little extra planning before you buy can help you avoid unnecessary financial pressure after registration.