Wednesday, October 17

Smart sacrifices made homeowner dreams real

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To learn the tips and techniques used by savvy young homeowners, PropertyFox spoke to Capetonians who bought before they were 27.

To learn the tips and techniques used by savvy young homeowners, PropertyFox spoke to Capetonians who bought before they were 27. 

Sallyanne Lewendon – The brilliant young budgeter:

Head of print production at an ad agency, Lewendon bought a one-bedroom sectional title in Vredehoek with a garden, deck and gorgeous view 11 years ago. 

She chose Vredehoek because her other choices – Tamboerskloof and Oranjezicht – were pricey. The deck is her favourite feature and she’s currently saving to knock out the wall between the kitchen and lounge to make it open-plan.

Lewendon says the down side of property ownership is that all changes and problems are for your own account. But the good outweigh the bad. “The sense of ownership is amazing. I struggled and gave up a lot, but every sacrifice was worth it.”

Her decision to invest in property was made when her landlord gave her notice. She began looking and found only one place she could afford that met her criteria of being based in a good location (Vredehoek) with plenty of potential and no serious damage or damp.

She used her ad agency’s staff scheme to acquire a low interest rate for her bond. She also took her pre-existing budgeting tendencies into overdrive and drew up a strict plan that involved smart sacrifices:

● Decided to do her own housework.

● Cancelled her gym and kick boxing memberships.

● Trimmed her insurance policies.

● Changed her medical aid to a hospital plan.

● Set a budget for food each month – and stuck to it.

● Reduced her cellphone expenditure.

● Didn’t buy new clothes and made fewer hair appointments.

● Had no credit card.

● Didn’t go to dinners that weren’t in the budget.

She says it was all worth it as her bond is now only R4 000 a month. 

Lewendon has renovated the property herself, stripping the kitchen cupboards, priming, sealing and painting, and making it all her own.

She also saved for building the deck that extends from the lounge, which has added to the home’s resale value.

Saving for anything requires you to budget and stick to it. Picture: Supplied

Budget, save for biggest purchase 

Michail A Savva, a financial planner for Core Wealth Advisory Services, says your first task should be to determine the current price of a house in an area that would suit you. 

To do this, websites and/or estate agents will be useful. “The deposit required will be a percentage of this value. As a rule of thumb, this would be 10% of the total value. “On average, our clients save for around three years for a house deposit. 

“We calculate the required monthly savings needed to build up to the deposit amount over the appropriate time frame. We also take inflation and property growth rates into account.” 

Savva says saving for anything requires you to budget. For this you need to assess how much money you will have left after deducting your monthly expenses from your monthly income. 

If this is not sufficient you need to re-look at your expenses and determine where you can cut down to free cash. Once you have worked out what you’ll need to save each month, it is important to use the most suitable investment vehicle, for example a Money Market fund or discretionary investment, to put the money away safely. Savva recommends asking a financial planner to help you choose where to invest as there are many factors to take into account. 

Selecting the correct investment will ensure an appropriate structure that is unique to your financial situation. In today’s market environment, it is imperative to diversify to reduce risk without decreasing returns, he says. 

When you have saved nearly enough for the deposit, it is important that you work out if you are able to afford the monthly bond repayment. “I suggest putting aside the total monthly amount for at least six months before the date of purchase to ensure you can afford the bond repayments. “If you are renting, this amount can be lowered by your current rent as you will not have that expense once you have bought and moved into your home. “This means you will have more money than you had budgeted for, but this will help with the other costs involved with buying, such as transfer duty and costs, bond costs and the initiation fee – plus you might want to renovate the kitchen.”

Steps to pre-qualify for a mortgage
Kay Geldenhuys, from mortgage originator ooba, says: “The two most critical requirements to pre-qualify for a mortgage are a good credit score with a track record of responsibly repaying contractual debt, and tangible proof that the monthly bond repayments are affordable. 

“Banks will require proof of income and will also ask buyers to provide income and expenditure statements which indicate there is sufficient money to service the bond once all existing debt commitments and household expenses have been accounted for.” Geldenhuys cautions that a little-known factor which could count against applicants wanting to pre-qualify for mortgages is having high, but unused, credit facilities which are available on their credit cards, retail accounts and access bonds. 

“Although one would expect this to count in one’s favour, the opposite is in fact true. Applicants with unused or seldom-used credit facilities should either reduce the limit, or close accounts in order not to prejudice qualification for a bond.”

Go to http://www.iol.co.za/lifestyle for more tips

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