Buying a home for the first time is a big financial and long-term commitment. Before you take this huge step, carefully weigh up all aspects, including whether buying or renting will put you in a more manageable financial position.
Here are three fundamental guidelines that outline the key differences between renting and buying, according to Simphiwe Madikizela, Head of Projects at FNB Housing Finance:
Finances When Buying
- Buying a home attracts upfront costs, which need to be budgeted for. For example, a R500 000 home, will attract R10 000 in bond costs, which is the amount needed to register the bond with the Deeds Office.
- While there is no transfer duty on this amount, (which is the tax owed to SARS), there is still transfer costs of R12 100, which are the fees paid to the conveyancing agency for their services.
- Securing an interest rate of prime plus one (10.25%), your monthly repayments on a R500 000 bond will be R4 900.
REMEMBER: These are not your only monthly costs. As a home owner you are also responsible for rates and taxes, levies, water and electricity, as well as household insurance for your belongings as well as the structure of your home. Over and above the bond, you should always budget a little extra to be safe.
- When renting a property, you will need to provide a deposit, which is normally a month’s rent, in addition to the rent for your first month. This deposit is used to cover any damage when you leave the unit or house.
- Once the deposit is paid, you are responsible for paying your rent and utility bills, electricity and water monthly or as set out in your lease agreement.
REMEMBER: It is very important for renters to also note that they will, in the majority of cases, be expected to have their own household insurance in place. This is to cover your own personal goods that are in the rented house, in the event of a burglary or a fire. However it is the home owner’s responsibility to have his or her own building insurance, which covers the actual structure of the house or flat.
Assess: Is Renting Or Buying For You?
- If you are able to afford the bond and the additional monthly payments, as well as the money for added costs then you are probably in a good position to buy.
- Bond repayments may seem steep in the beginning but after a few years your income position will be stronger and towards the end of the 20 year period, your bond will not have increased with inflation.
When Will Renting Put You In A Better Financial Position?
“There are a few positive factors that go into renting,” says Madikizela. “One is your long term position; do you move around a lot, are you planning on travelling or taking a break from your employment at any stage?”
Buying is a long term commitment, and it isn’t an easy process to sell a house, which may actually put you on a financial back foot if you have to sell in a relatively short period.
However, if you are renting, Madikizela suggests that you build up your financial position with the outlook to one day be a home owner.
“There are advantages to both renting and owning your own house. Make sure you take all the different aspects into consideration like where you are in your life currently, when doing your sums to make the right decision,” advises Madikizela.
By Hlulani Masingi