Buying property: How to stay within budget


houseEven if you establish a budget beforehand for something, you often find yourself spending a bit more than you meant to. If you’re in the market for a house, however, spending that “little bit more” could put you back tens of thousands of rands, or much more.

Here is how not to let that happen.

Know your price limit

Before you buy a home you generally need to first be pre-approved for a home loan. Your bank or mortgage originator will determine how much it thinks you can afford. Be aware that this isn’t necessarily the figure you should spend on a home though. You need to factor in your personal financial situation yourself and figure out what your cost limit is, in other words, how much you can afford to spend on this step in your life in total.

But your cosy limit isn’t your buying price

Your cost limit isn’t how much you can actually buy a house for though. This is because there are always additional costs involved with buying a house and you have to make room in your budget for those as well. For example, if you have a R1 million bond, the bond registration could cost around R20,000 and the transfer cost could be nearly R30,000. Then there are also other “hidden” costs like moving, registering utilities, monthly rates, taxes and levies and whatever renovation needs to be done.

A good guideline is to settle on a cost limit that you can afford to spend in total. Then put 30% aside for additional or unforeseen costs, and the other 70% is the amount you can afford to spend on the property’s actual price tag.

Depending on you, you might find it easier to think in terms of what you can afford to pay a month, or in terms of how much you want to spend in total. It is useful here to use an online tool like a bond repayment calculator to work out how much you want to pay in total for the loan period and how long you want that period to be, or you can work it out in terms of how much you are willing to spend per month and for how long.

The online calculator will just let you adjust the parameters until you find a budget scenario you are comfortable with.

Once you have settle on how much you can afford to spend on your bond every month and what property price is reasonably within your means, you are ready to go out and start finding your dream home. Just be careful not to ever get too excited and pay more than you know should.