First-time homebuyers in South Africa often make mistakes when shopping for mortgages. Here are some common ones and how to avoid them:
1. Not Checking Their Credit Score First Mistake:
Applying for a home loan without knowing their credit score, which affects approval and interest rates.
Solution:
Check your credit score via services like TransUnion, Experian, or ClearScore before applying. A score above 600 improves loan approval chances.
2. Not Saving Enough for a Deposit Mistake:
Assuming they can get a 100% home loan without a deposit.
Solution:
Save at least 10-20% of the property value for a better interest rate and lower monthly payments.
3. Ignoring Additional Costs Mistake:
Only budgeting for the home price and mortgage without considering extra costs like transfer duties, legal fees, and homeowners’ insurance.
Solution:
Factor in transfer duties (exempt for homes under R1.1 million), bond registration, and maintenance costs.
4. A comparing home loans
Accepting the first offer from their bank without shopping around.
Solution:
Use bond originators like ooba or BetterBond to compare loan offers from different banks.
5. Choosing the Wrong Loan Term Mistake:
Opting for a longer loan term (e.g., 30 years) to reduce monthly payments but paying much more interest over time.
Solution:
If possible, choose a 20-year loan and make extra payments to reduce total interest.
6. Not Understanding Interest Rate Options
Mistake:
Not knowing the difference between fixed and variable interest rates.
Solution:
A variable rate fluctuates with the market, while a fixed rate offers stability. Consider locking in a fixed rate if interest rates are expected to rise.
7. Skipping Pre-Approval
Mistake:
Looking for homes before knowing how much they qualify for.
Solution:
Get pre-approved to understand your budget and improve your negotiating power with sellers.
8. Not Reading the Fine Print
Mistake:
Overlooking penalties, such as early settlement fees or required home insurance.
Solution:
Read the loan agreement carefully and ask the bank about hidden fees.
9. Taking on More Debt Before Bond Approval
Mistake:
Applying for credit (e.g., a car loan) before their home loan is finalized, which can lower their affordability.
Solution:
Avoid new debt until after securing the home loan.
10. Not Factoring in Future Interest Rate Hikes
Mistake:
Taking a loan at the edge of affordability, without considering possible rate increases.
Solution:
Ensure your budget can handle a 2-3% increase in interest rates.
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