Johannesburg – Don’t wait to buy a home until you’re about to get married or start a family – start planning for home ownership as soon as you start earning.

This is according to Harcourts Africa CEO Richard Gray, who says young people should be thinking about buying their own home right from the time they get their first job or start their own business.

“At this stage of life, it is true that you usually have to budget very carefully to cover all your monthly expenses. But if you can afford to pay rent, you should seriously consider whether you would not be better off paying a monthly home loan instalment – or at least start seriously planning to buy a home of your own as soon as possible.

“This is especially relevant now, when low interest rates mean the home loan repayment on a starter home might well be the same or very little more than your monthly rent, and the banks currently have several special home loan products available for first-time buyers.”

Gray says it is important to realise that each repayment on a home loan represents a contribution towards your own financial security – and independence.

“The value keeps increasing over time, so owners who sell after a few years can confidently expect to show a healthy return on their investment.”

This means that it does not matter if you can only afford a small home now, or even if you have to let it out because you are pursuing work opportunities in another town or country for a while, he adds.

“The fact is that it is yours, and that you will have something to ‘trade in’ when you need a bigger home.”

Gray also notes that the longer one stays in one’s home, the more cost-effective owning becomes compared to renting.

“Rent generally keeps rising with inflation every year, while home loan repayments are influenced by interest rates.”

But even when interest rates rise, a portion of your repayment still goes towards paying off the outstanding capital and acquiring your own asset, instead of paying for someone else’s.

Gray adds that home ownership brings other benefits such as security, stability, privacy and the freedom to control your own environment.

He does warn, however, that it also implies more responsibilities.

“Being your own ‘landlord’ means you are responsible for maintenance, repairs and municipal rates and taxes, and these costs do of course have to be taken into account when you calculate how much you can afford to spend on buying your own home.”

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Hidden Costs in a Mortgage

Most every loan is going to have associated with it fees for insurance, valuation, etc. Most of these fees are commonly required amongst all lenders and they must give you a list of their costs associated with a mortgage. Despite the fact that the costs are disclosed, some lenders may include extraordinary “junk” fees in their costs that an unwary buyer may not recognize as an extra fee. At the time of a loan application lenders are required to give you a written closing cost estimate.

First, determine if you’re rate are being loaded. Some lenders advertise artificially low rates to attract customers but load up on fees to compensate for a lower rate. A tip off to a lender that charges hidden fees would be a lender who advertises interest rates that are appreciably lower than the competition. Interest rates are very competitive and shopping for the very best rate may in fact work to your disadvantage. Differences in rates of 1/8^th or 1/4^th of a percent result in very little difference in a payment and may be offset by poor service and added hidden fees.

Mortgage companies and fees. Mortgage companies often advertise that through their intervention the financial institution will subsidize the client’s bond registration fees. But, at what cost to the client? Saving R2 000 for example in bond registration fees, but ending up paying R200 000 more in interest is a great deal for the bank, but not for the client.

Mortgage companies are often owned by a bank or an estate agency. The real issue is a serious lack of independence and conflict of interest. Clients have no guarantee that their mortgage application will be channeled to the lender that offers the best interest rate instead of to the one offering the broker the highest commission. These fees will be subsidized by the banks customers in the form of higher charges and higher interest rates.

Always work with an mortgage firm that is independent from any bank and who’s services are FREE and without any premiums attached to the client like Mortgage Plus.

Correcting Past Credit Problems

Contrary to what you may have heard, credit reports are for the most part accurate. Common last names and a “Jnr.” in the family does cause a few problems but credit reports identify people by their identity number, address, and name. If you have an issue with your credit report, credit-reporting agencies are required to attempt to resolve the problem. Most of the information has to be provided by the individual and they should stay in touch for as long as it takes, frustrating or not. There are two main credit repositories in South Africa: Trans Union, and Experian. These companies each hold a database of information and provide it to a more local credit-reporting agency that may actually be issuing the report. If you have a dispute, you can go direct to the two repositories to attempt to clear the issue.

As mentioned before, credit scores in the 500 range can cause problems when attempting to obtain new credit. You can raise your score if the original information was incorrect, or you can over time improve your payment history, but it may take a few years of diligent payments to appreciably raise your credit score.

If worse comes to worse declaring bankruptcy  may be your only answer, but despite its growing popularity, I recommend it only as a very last resort. A bankruptcy will stay on your record for years and make obtaining credit difficult. There are two methods to declare bankruptcy: Voluntary and Compulsory Insolvency (bankruptcy). If your creditors have you sequestrated, this is known as compulsory sequestration. If, however, you decide to have yourself declared insolvent, such act is referred to as voluntary sequestration.

Should you not have yourself declared insolvent, but wait for your creditors to take the necessary action, there is a possibility that they will not succeed in their application for a court order. It may no longer be in their interest, on account of the fact that your assets are worth too little to them.

In the absence of compulsory sequestration, your debt simply increases further (as a result of interest), and your financial suffering is aggravated and endures for longer. The descriptions above are overly simple and general, but the bankruptcy option is a poor one and you should explore your options with an attorney before making a decision. After a period of time a rehabilitated insolvent may apply for credit, but this will depend on numerous factors. Most lenders state that at least a year must pass after a person’s been rehabilitated and a new good credit history must be established. A difficult chore, but it can be done. Make sure that rent or mortgage payments have no late payments for at least the previous 12 months. Avoid paying in cash; make all payments by check or credit card where your payment history can later be verified. It will also help to explain to your lender that the situation that originally caused the problem, a job loss, illness, etc., has now been resolved.

To learn more or if you’re interested in getting a loan, or are worried about debt, make an enquiry with Mortgage Plus at www.mortgagepluscc.co.za or call (011)327-4489 / morne@mortgagepluscc.co.za