Critical Mistakes Property Buyers Make

Entering the property industry as a home buyer can be nerve-wracking and stressful, and the thought of making a mistake with such a large investment is overwhelming enough to put you off. BUT NEVER FEAR, LWP PROPERTIES IS NEAR, and we are here to unpack some of the most common mistakes made by property buyers, and advise how to avoid them... of course, having an excellent agent to take you BEYOND THE SALE is a good start!

Not accurately calculating your affordability

Before buying it is important to understand what you can reasonably spend and afford in terms of bond repayments; failing to do so can lead to disappointment when applying for a home loan.

LWP TOP TIP:

Use an online home loan affordability calculator like OOBA to get a realistic idea of the financing you would qualify for.

Generally, your home loan repayment cannot exceed 30% of your gross monthly income, or combined gross incomes in the case of a couple, and cannot exceed your net surplus income. Remember, a bond calculator is just a guideline of what you can reasonably afford, and does not include a credit check nor a full affordability assessment which your bank will require.

Not having a pre-approved bond

An excellent way of understanding your affordability and placing yourself in a stronger negotiating position is to obtain a pre-approved bond, which you can do either through your own bank or through a bond originator. Home loan pre-approval means going through a pre-qualification process together with a credit score check to calculate the size of the home loan you are likely to qualify for. Once completed, you will be provided with a pre-qualification certificate which you can present to your estate agent as evidence of your serious intention as a buyer.

Not using a bond originator

While it is perfectly possible to apply to your bank for a home loan, don't ignore the considerable benefits of using a bond originator. While your bank's priority is to get the best deal for the bank, a bond originator's goal is to get the best deal for YOU. They will help you prepare a single application which will then be submitted to a number of banks on your behalf. They will help you fix your credit score, put all the necessary documentation together, obtain pre-qualification, and secure the most favourable interest rate from amongst the banks applied to.

DID YOU KNOW?

Using a bond originator like ooba increases your chances of getting a home loan by 36%, so don't ignore this option!

Not taking a longer-term view of the purchase

The transfer costs and commissions involved in buying and selling property are enormous, so it's essential to think longer-term when buying your first property. While it's not always easy to know what the future will hold, give careful thought to how your property needs would change if you were to, for instance, get a pet, get married, have a second vehicle (car, boat, motorbike, caravan, or other craft), or engage in hobbies that require additional space.

Perhaps you will need to rent out space in your new property in order to generate rental income, so consider whether the house can do this. While a lock-up-and-go close to the city centre might be ideal for your needs right now, how different will these needs look one year, two years or even five years from now, and is it an investment worth making.

Not researching the area

While buying into a neighbourhood is excellent advice, be sure to do your research properly. If you first viewed the property on a quiet Sunday afternoon, you may get a one-dimensional view of the area. Ideally, visit the home on at least three occasions at different times of the day and evening so that you get a feel for the neighbourhood in terms of vehicle and foot traffic, traffic congestion, and noise pollution. Do your research into the crime statistics of that suburb, any vagrancy issues that might exist, difficult neighbours that could make living there unpleasant, or busy roads that could make it dangerous if you have pets or young children.

Your area specialist should be able to tell you what other property sales have taken place in that area in the past year so that you can do a comparative price analysis; similarly, if there has been an unusually large number of sales in that area, ask questions and do further investigation into the high turnover of properties. Is there a new road or development coming that could be causing this?

Making heart (not head) decisions

While a home is an extremely emotional choice, it's important to temper your emotions and excitement with rational thought and decision-making. If you love the home and have your heart set on it, avoid overlooking faults or falling into the trap of waiving away your rights simply to secure the deal - it can prove costly in the long run.

Not employing a property inspector

While you might be in a rush to put in an offer to purchase, you should use the services of an experienced home inspector to ensure that you are not buying a house with hidden defects. A home inspector effectively bridges the trust between the buyer, seller and estate agent, and allows for an independent expert to inspect the property for both latent and patent defects.

Latent defects, which are those defects not obvious to the naked eye, can leave you at huge financial risk, and legal recourse is difficult as you will be required to prove that the seller deliberately hid the defect from you.

DID YOU KNOW?

Most offers to purchase include a 'voetstoots' clause, meaning that the buyer accepts any problems inherent in the home's structure, whether patent or latent in nature. A home inspector will be able to ask the seller the right questions to determine whether any specific problems, such as damp, leaks, water pressure, or structural damage, exist.

Not insisting on building plans

You know what they say about assuming?! Well, do not assume that the home you intend to buy comes with a valid set of building plans. If there is no specific clause in the offer to purchase insisting on proof of approved plans, the buyer will subsequently have no right to demand plans from the seller. The absence of plans will then constitute a latent defect and would be governed by the 'voetstoots' principle above.

REMEMBER: If you are applying for a home loan, the lending institution may insist on seeing the approved plans of the property, so it may be in your best interests to build a clause of this nature into the sale agreement.

Not accounting for rates and taxes

Before putting in your offer to purchase, be sure to find out what you can expect to pay in terms of rates, taxes and other municipal services. Property rates and taxes are calculated with reference to the municipal valuation of the property, which in turn is based on the market value of the property. Each municipality sets its own rates which are dependent on the use of the property and the geographical location, so be sure to ask your estate agent for these numbers.

Not establishing an access bond

An access bond, which is a type of home loan that allows borrowers who have paid extra into their bond to withdraw the extra money at a later stage, is extremely useful and can be effective in reducing interest. Any surplus money paid into your home loan will result in you paying interest on a smaller capital amount. You can also save money by depositing your salary into your access bond and transfer sufficient money into your current account to cover your monthly living expenses, whereafter any surplus salary in your access bond will reduce your interest charges. Although you can apply to have your home loan changed into an access facility at a later stage, it is easier to apply for an access facility upfront to avoid unnecessary administration later on.

Underestimating the costs of homeownership

Your monthly bond repayments are not the only costs involved in homeownership! It is important to fully understand all other costs that you will need to budget for as a homeowner, such as building and contents insurance, bond cover, cleaning and garden services, rates and taxes, electricity, security, fibre, and other services.

Not knowing your consumer rights

Don't fall into the trap of assuming that the Consumer Protection Act affords you blanket protection when it comes to buying property. In reality, this piece of legislation only comes into play if the seller regularly sells property or markets themselves as sellers of property, such as a property development company. Also, be aware of how the 72-hour clause can work to protect your rights if the offer to purchase includes a suspensive condition such as where the sale is subject to bond approval. This clause effectively gives the seller the right to continue marketing the property where the offer is subject to the buyer's bond approval, while on the other hand the buyer is protected against making a commitment that they cannot meet, such as where they cannot secure financing for the property.

Not reading the fine print

Don't be intimidated by the sale agreement. Take time to read through the document to ensure that you fully understand what you are signing and why. Your estate agent should take time to go through the contract with you line by line.

Specifically, check whether the seller has included any clauses relating to the fittings and fixtures; generally, all items that are fixed to the property, such as burglar bars, light fittings and safety gates, are included in the buying price. Moveable items such as curtains, blinds and garden pots are generally not included in the sale.

LWP TOP TIP:
When it comes to occupation rent, ensure that the amount of rent stipulated is fair and in line with what rental for that particular property would fetch in the open market.

Having a reputable and experienced agent is the best way of ensuring that your acquisition is right for you, right for your pocket, and a great asset to take on board.