PURCHASING A PROPERTY – UNDERSTANDING THE COSTS
Being a first time home owner is not an easy task to manage. It is not only the monthly repayments you need to budget for, but there are always extra costs that you don’t take into account, or that you only hear about once it is too late. It is always better to seek legal advice that can be tailored to your specific circumstances before putting ink to paper.
We have compiled a list of home buying costs that will give you a general idea and help you budget before purchasing your property:
There are usually two attorneys involved in a transfer of property – a transferring attorney and a bond attorney.
The transferring attorney sees to the actual transfer of ownership between the Seller and the Buyer.
The bond attorney is instructed by the bank to register a mortgage bond on behalf of the bank over the property.
The cost of transfer and bond registration depend on the purchase price of the property as well as the value of the loan.
Included in the attorney’s costs are fees for drafting documents, deeds office registration and sundries.
Transfer duty is a government tax that is payable to the South African Revenue Service and is calculated on the purchase price of the property.
Currently, property below R750 000.00 is exempt from transfer duty.
Rates, taxes and levies
These are costs payable to your local authority for servicing the property. Until the date of registration of transfer of ownership the Seller is liable to the municipality.
If however you intend on buying a property on auction you will be accountable for all costs due to the municipality – which is more often than not something you didn’t budget for.
Financial Institution Fees
If you have applied for a bond to purchase the property the bank will charge an initiation fee to open a loan account. Currently the fee is charged by most banks is around R5700.00. You may be requested to pay this amount upfront or it is sometimes added to your bond account to be paid off with your monthly instalments. A monthly administration fee will be payable to the bank for administering the loan.
Deposit on Purchase Price
The banks are applying strict affordability criteria in terms of the National Credit Act.
Simply speaking – you may be granted a loan but only for a percentage of the purchase price and you will then be required to come up with the difference between the loan amount and purchase price by putting down a cash deposit on the property.
In some instances VAT rather than transfer duty will be payable. This will be determined by looking at the status of the Seller as well as the type of transaction.
If the Seller is a registered vendor VAT will be payable to SARS by the Seller if the Purchaser is not a registered vendor.
However, if both parties’ are registered vendors and the property is sold as a going concern or in the parties course of business the transaction may be zero rated – which means that VAT will be calculated at 0%.