First Steps In Buying a Home

The steps in a real estate transaction in South Africa are a little different from the home buying process in other parts of the world. The South African property law differs from many other countries, because of our unique history. Many South Africans have never bought a property, and therefore don't know how to approach the home buying process.

You'll feel more confident about buying your new home, once you understand what is required of you and every other person involved in the real estate transaction.

For those homebuyers who are unsure about the steps of a real estate transaction, and for those South Africans who just need to be reminded, here is a breakdown of the first part of the ladder of events that will lead to owning your own home.

Get Your Finances in Order

Yes, the first step is all about the money. But the first step in buying a home is also about how you have managed your money and credit responsibilities in the recent past. The mortgage lender (usually one of the South African banks) will want to know how well you repay your debts, and how big a risk they are taking if they lend you a bunch of money.

The mortgage lender will want to know how much you earn. For this, the lender might require bank statements of your transmission or checking account, for the last three months, a recent payslip, or your most recent financial statement. If you are self-employed, or will be relying on income that does not come from a regular salary, the mortgage lender may request audited financial statements.

Your credit report will give an indication to the mortgage lender about your loan repayment history, and how big a risk the mortgage lender would be taking, if they lend you money. The credit report is an ongoing record of how you manage your finances.

It is important for you to know exactly what your credit report says about your financial history, before you apply for a mortgage. The credit report plays an important role in the mortgage approval process and in determining the interest rate and other loan terms that a mortgage lender will offer you.

You are entitled to an annual free copy of your credit report. So, if you haven't looked at your credit report yet, do this first. You might be surprised at their contents. Errors are common.

For instance, when I applied for my first cell phone contract, I was declined, based on information on my credit report. This was strange, because I had never had any credit before, as I had just moved out of my parents' house.

After contacting the credit bureau, they removed the erroneous bad credit mark behind my name. Some idiot had black listed all the people with my surname and initials, because one guy never paid his hostel fees at University!

The credit report people can protest all they like, but this really happened. So, check your credit report now, before your property purchase is delayed, or cancelled, because of a silly mistake.

Get to know the South African Mortgage Industry

There are many lenders in South Africa willing to give you a home loan. But the different lenders all have different ways of doing things. Finding the right loan and lender is crucial to your home buying success.

It's up to you to determine which mortgage lender is best for your needs. To make this decision, it is always a good idea to have at least a bit of background about the home loan process, before you ask to a mortgage lender for a fortune.

Get Pre-Approved for a Mortgage

Do you know how much you can afford to spend on a new house? You probably don't, unless you have already talked to a mortgage lender, and gotten pre-approved for a mortgage.

Getting pre-approved for a mortgage also helps you in other ways. The mortgage lender will usually provide you with a mortgage pre-approval certificate, which states the maximum amount you qualify for. This pre-approval certificate can come in very handy, once you have made an offer to purchase a property.

Consider this scenario: A home seller gets two similar offers to purchase his/her property. One offer is accompanied by a letter from the buyer's bank, stating that the buyer is pre-approved for a mortgage in the amount of the offer. The other offer to purchase the property has no supporting documents. Which offer do you think the seller will consider better?

Many people will have you believe that South African mortgage lenders don't pre-approve homebuyers any more. But they do. A mortgage lender that has the chance to make reasonably sure that they will be getting your mortgage business will not pass up this golden opportunity.

But remember: Even though you get pre-approved for a mortgage, the sale of the property will still depend on the mortgage lender's assessment of the property you want to buy. The mortgage lender will want to make sure that the property offers sufficient security for the home loan, before finally approving your mortgage loan. So, make sure that a "subject to mortgage bond" clause is included in your offer to purchase the property.

Determine Your Wants and Needs

Buying a home isn't as difficult as you might think, even if you're short on funds. But the process of buying a property will go a lot smoother if you know what you need (and what you want).

Get familiar with your real estate market and narrow down your wants and needs before you start looking at houses. This will save you a lot of time and effort, which could be wasted, looking at properties that just won't cut it.

Learn to Work with Real Estate Agents

Real estate agents may represent buyers, sellers, or both. The idea most South Africans have is that real estate agents should be neutral, or impartial, facilitators for all the parties involved in the property transaction. It's essential to understand the real estate agent's duties and loyalties, before you make that first phone call to a real estate agency.