what you will learn in this webinar
David Bester 00:02
We are live.
Justin Harrison 00:09
Just give everyone a chance to get on the feed.
David Bester 0:44
Hello everyone. For you guys that are here, please leave your comment, introduce yourself, tell us where you guys are from. You will notice that we're doing this webinar at a slightly different time. What we’re currently doing is, we’re testing different times, to see what works best for people. Obviously, we cannot satisfy everyone; a lot of people requested mornings; a lot of people requested evenings and a lot of people requested this time as well. But the good thing is, we're going to be sending out the links, so if you happen to miss this webinar, then you can at least watch the replays.
So, yes, hello Khanya, should be interesting. Let us know when you guys are from; tell us if it's your first time here; if you've attended our webinars before. And then, we'll get started within a minute or two, we're just waiting for everyone to get online.
Justin Harrison 01:38
Ja, and if you do happen to miss this live stream for some reason, maybe you have to run back to work or, you know your connection drops, don't worry about it. We are making a recording of the live session, and that will be pushed out later. But obviously, one of the biggest advantages of the last stream is, you guys get to interact with us and ask questions live. So, if you do have questions, please let us know. Just drop them in the comments box and as we going through the presentation today, we will address your questions. But if for some reason you do miss it, please make sure you subscribe to the YouTube channel, and that way you'll get the replays as soon as they’re pushed out.
David Bester 02:21
Hi Sibusiso; Khaya, I see you’re a property investor, so I'm sure you'll find a lot of value from today's webinar.
Justin Harrison 02:34
Okay, Dawie, shall we get going?
David Bester 02:36
Yes. Let me bring up the screen real quick. I'm going to try and keep this as short as possible and get straight to the point. Everyone has got busy schedules, so I'm going to try and keep it short and run through the slides as quickly as possible because we usually have quite a few people having answers at the end and generally, we have to cut them short because we're running out of time. So, with that being said, today's webinar is going to be on “Home Loan Tips”. I'm sure a lot of people are interested in this, since we are sitting with record-low interest rates, it has become a lot more affordable for people to afford a home now and in order to get home, you most probably need a home loan. So, what you will learn in this webinar: Buying versus Renting; we're going to be discussing the Quantifying Criteria to apply for a bond; the Extra Costs When Getting a Bond, and then we're going to chat about the Extra Costs After Getting a Bond. This is the stuff that people generally never tell you about, so, it generally, usually, lacks in people's planning. Then we're going to talk about the Benefits of Using a Bond Originator, instead of going directly to the bank. And lastly, we're going to show you two examples on How You Can Save Thousands on Your Bond, and then right at the end, we'll do a quick demo of My Credit Status, to just show you, exactly what to look at on your credit reports and where to see, if you could qualify for a bond or not.
So, the first one is Renting versus Buying: For the most part, buying a house is generally a very emotional decision, right. Everyone wants to own their own property but that's not necessarily always the best thing. I've put down a few questions that you need to ask yourself, before you consider buying a home, and rather look at renting a home until you are ready to actually go and buy. So, the first thing is, do you have a deposit of at least 20%? If you've got a good credit score and your affordability is pretty good, then generally, if you're lucky, you'll get a 100% bond. If not, 10% but for most parts, you’re probably looking at putting down a 20% deposit. So, if you have not saved up a 20% deposit yet, then you might need to look at rather renting first and just saving up for that deposit. Also, putting down a bigger deposit means that you're going to be paying less on your monthly instalments on your bond. Second thing is, will your monthly repayment be less than 30% of your income? This is a general rule of thumb, right. If your bond payments will exceed 30%, then it probably means, that you're going to be running into financial problems, later down the line, because you need to remember, if you're paying more than 30%, you’ve still got other costs to keep in mind. You’ve still got life insurance; maybe you've got kids; maybe you've got a spouse, groceries. Obviously, everything is getting more expensive. So, a general rule of thumb is 30%; if it exceeds 30%, rather rent, until you're ready to buy.
Justin Harrison 05:44
Ja, also Dawie, I think something that’s really important for people who consider renting or buying: so, besides your bond repayments; besides all your normal costs; besides all the additional things, like life insurance, home insurance, all the rest. A big thing that people don't take into account is, what it's going to cost to maintain the house. So, things like cutting the lawn - even if you're doing it yourself - you have to consider that, your lawnmower is probably going to break at some point. You have to consider that, you need to buy spares for your lawnmower; you need to consider, you're probably going to be doing some paintwork; you're probably going to be doing some repairs; there might be some taps, geezers, electricity things that you need to sort out. So, a big thing that I see, when people budget is, they don't take into account, just how much the maintenance bill can be. I mean, you can shoot off to the hardware store and come back and have spent five to R600. It's pretty easy. So, what I would say, to anybody looking at renting versus buying: first of all, as you said, make sure that you’re within 30% of your income on your bond repayment; make sure you have 20% available as a deposit. And then, very important, sit down and work out, more or less, what the maintenance bill is going to be. I can tell you, for a house of about R1 million, you can budget, at least four to R5,000 a month, that you need to set aside for maintenance. Even though you might not be spending that every single month, the big expenses are going to come out, like painting, maybe retiling at some point, fixing up the kitchen. It's absolutely critical that you take that into account. So, I think it's really important that people consider that because when you're renting, you don't really have those expenses; that falls under the landlord in 90% of the leases out there. So, just please guys, when you're looking at structuring bond repayments and structuring affordability calculations, make sure you look at maintenance. Maintenance is a critical, critical component.
David Bester 07:38
100%. We’ll actually get into that later as well but in the industry, a general rule of thumb, when it comes to looking at maintenance, between seasoned property investors, is they generally factor in a 1% maintenance cost. So, if you buy a house of, let's say, R1 million, then you can, probably put down about 10,000, per year, for maintenance because that's generally what's going to cost you. It might not cost you that 10,000 that same year, but the next year, it might be something like 20,000 [inaudible]
Justin Harrison 08:09
And some houses, it may be, even more, Dawie. It really depends [inaudible] Are you in a freestanding house, are you in an apartment? So, rather err on the side of caution and budget quite a bit more for it.
David Bester 08:21
Ja, look, if you buy a house with structural damage, then you're looking at hundreds of thousands. You need to do your homework when you're buying a place. Absolutely. So, the other point is, will it wipe out all your savings? Look, unexpected things always happen; all of us know it. And if you don't have money to catch up on your bond, then you might be looking at not making your monthly repayments. Worst case scenario, actually, losing your entire house, due to a foreclosure. Always make sure that you've got savings available, for when the fan strikes. We never know what might happen; your car might break down, you might get into an accident, you might end up in the hospital, and as we know, that can easily rake up a bill of over 1,000 bucks. I know, when my first kid was born, in ICU, the medical ball was up to 350,000. Luckily, I’ve got medical aid, so it didn't bother me.
Justin Harrison 09:17
David Bester 09:19
Can you afford 1% maintenance costs? We actually already discussed that so…
Justin Harrison 09:24
Dawie, to be fair, I'm a property owner of multiple properties; I've owned hundreds of properties over the years and I can tell you, 1% is extremely conservative. In fact, I would say, 1% is more like your emergency fund on a property. Your maintenance costs are way higher than that, depending on your situation. If you're in a sectional title, and you're in an apartment or a sectional title development - you might be in a duplex or simplex - 1% might be in line because your levies contributions are usually going to take care of a big part of maintenance. But if you're in a freestanding home or you're in a freehold home, within the estate, 1% is probably just not enough; it's very, very conservative. So, I think people need to take these calculations in mind; consider the type of property that they own or they're looking to own and really calculate the true costs of maintenance because 1% is extremely conservative.
David Bester 10:27
100%. Another thing you need to look at and this is something no one really tells you, ever. Is it cheaper to own or to rent a property in the same place? I can give you an example. I was looking at properties the other day, in Hermanus, in an estate and to buy the place, the bond would have cost about 60,000 and to rent the same place, it would have cost you 20,000. So, you're actually saving 40%, just on the bond, just by renting. You can take that 40%, you can put it in another investment, that can generate your passive income down the line, and you can just become financially free much quicker. However, if you spend that money on a residence or a house, then it obviously might not be the best decision in the long term. So, make sure to check the prices, look at the square meter, the average price per square meter and then compare the prices. Don't just go and own because it's an emotional decision - you just want to own - make sure to run the numbers. If you can rent for cheaper, rather rent for cheaper; you can still buy but rather go and invest it into a rental property, that can actually earn you money.
Justin Harrison 11:39
Also, Dawie, I think a great thing for people to know: Everybody makes out renting is such a bad thing and I don't want to seem like I'm saying renting is a better option because I really do believe people should own the roof above their head at some point. But at certain stages of your life, in certain stages of the economy, it makes more sense to rent than to own. One, it gives you flexibility but two - and this is a really important thing that nobody thinks about - if you rent, way below what you need. So, there's a study that we've chatted about, many times – 60% of people's homes go underutilised; you're basically paying for 60% of space you're not using. Whilst you're looking to get onto the property market, a really good idea, is to rent only what you need, and really save and penny-pinch as much as you can, to build up that deposit because when you go to buy your home, the bigger your deposit, the better. If you can get more than a 20% deposit, you're on a really great footing. My advice is, if you're in a situation right now, where you think you're probably ready to buy; sit down; really do the calculations; look at your 20% deposit; look at your 30% exposure, in terms of how much you’re going to be paying on your bond. Also, take into account, fluctuations in interest rate because interest rates aren’t always going to stay the same. But, for example, at the moment, we are on a historical low, and chances are that that rate is going to go up, over the next few years. So, if we're currently sitting at seven, budget on an interest rate of 10%; always put it a few points ahead. And then, use this current situation in the property market to your advantage. Go and rent, and basically build up as much capital as you can. There's definitely a good time to rent and a good time to buy. I do believe ultimately, that people should own their properties; ultimately, you should own the roof over your head. But the idea is to try and own as much of it as possible. If you can't pay it off entirely, then at least, try and build up a very big deposit because it's going to give you a head start and renting allows you to do that.
David Bester 13:42
Yes, exactly. If you want to retire one day, you at least want to own your house; you don't want to still be paying on a bond. But that's why I said as well, make sure to check if it's cheaper to rent because you can save that money now and then, in the long term, you can own that home. You can go and you can buy it cash, but it just allows you to free up that cash much quicker, by doing your numbers.
Justin Harrison 14:04
David Bester 14:07
And then, have you considered all the extra costs involved, which we will be covering next as well? So, let's start by chatting about the qualifying criteria when you want to get a bond. When it comes to your credit score, you need to have a credit score of at least 650+. On My Credit Status, our credit scores go from zero to 705. The closer you get to 705, the better your credit score, you'll most probably be able to qualify for a home loan as well. And not only will you qualify for a home loan, the closer you get to 705, you'll also get a better interest rate. So, I highly, highly recommend you fix your credit score first, before you go and apply for a bond. Because, if you've got an average credit score, and you apply for your bond now and let's say, you fix it at a 9% interest rate; you could’ve rather spent that time, another month or two or three, just increasing your credit score to an excellent credit score, and you might qualify for a 7% interest rate, which will save you, probably more than 200,000. And I'll show you this example, in one of the later slides as well. But you're saving about 200,000, in the long run. So, it's very, very important that you check and fix your credit score first, as best as you can, before you go and apply for a bond.
You need to have a fixed income, and if you're self-employed, you need to show them about two years’ financials. Let me tell you, a bank will not give you a home loan if you don't have a fixed income, and if you're self-employed, there's a bunch of extra documents you need to supply them with as well because, obviously, you're a bit of a bigger risk to them, so, they generally ask you for two years’ financials, if you can't show them a fixed income.
You need to have a good repayment history; that basically ties in with your credit score. So, if you've got a good credit score, it will generally mean that your payment history is in good standing and that you've got a good history, showing that you can actually make your repayments to your creditors.
Last but not least, you need to show a steady income of at least six months. This ties in with the fixed income bullet point, but generally, what a bank will look at is, they will look at your last six months and they will ask you for your last six months’ payslips. And that is, basically, the qualifying criteria. Justin, I don’t know if there's something I'm missing here that you want to add?
Justin Harrison 16:34
And I think, qualifying criteria is if you're in a financial position to be able to afford to buy a home; you really won't be worrying too much about the qualifying criteria because all of this, will sort of, fall into place automatically. I think, if you having to look at this stuff and make sure that you qualify, you probably shouldn't be looking at buying a property, right now. You're probably going to put yourself right at the threshold of what you can afford and that's probably going to put you in a bad place. So, in that instance, my advice would be, probably best to hang on a little bit, rent a little bit longer, build up some cash, some capital, to put into the properties. But if anybody is interested, these are the criteria that you're going to need to quantify with the bank. My advice is, if you're asking these questions, you’re probably not in the space to buy; that's my honest opinion.
David Bester 17:25
100%. Okay, so, the extra costs when getting a bond, and very, very few people know this. I took this image from BusinessTech - thank you very much BusinessTech for doing it for me - on a bond of R2 million, you will see, this is on a R2 million home; a 10% deposit. Okay, keep in mind, this will most likely go from 200,000 to 20%, depending on your credit score. But, for instance, we've got this image, we've got this example, so let's work from this. A 10% deposit on an R2 million home is 200,000, right? Now, the transfer duty - in other words, the tax that you need to pay - is going to be about R60,500. Astronomical, right? The conveyancing fees - this is the lawyers - you're going to be paying the lawyers 25,380. What I suggest is, work with a bond originator, that has got affiliations with lawyers; they can generally offer a pretty good discount. And the lawyers only give this discount because the bond originators give them the business. So that's…
Justin Harrison 18:35
I think a lot of people think that bond originators add fees to the loan. How the bond origination services work is, that, basically, you get your bond farmed out, to multiple banks, by the bond originator and the bond originator gets from the bank's, a success fee, that in no way, adds to the bottom-line cost. In fact, in many cases, with bond originators, you'll actually get a better rate than if you went and shopped around on your own. I would highly, highly, highly recommend using a bond originator and there's a number of good ones out there. If you guys are interested in bond origination services, shoot us a message on our support email address for the Facebook pages, and we'll gladly give you a link to go to.
David Bester 19:22
Yes. Then, postage and petties, R978; deeds office transfer levy R1,098; electronic document generation fee R748; deeds office search fee R242 and then, lastly, the local council rate clearance, which is R345. So, if you thought that you're only going to be paying the minimum amount on your bond, well, there's a surprise for you. There's going to be a lot of extra costs involved, so make sure you not only have the 20% or the 10%, and in some cases, the 30% deposit that you can put down on your bond. You need to make sure, that you've got all these extra fees saved up as well because it's definitely going to have to be paid if you want to get your bond, otherwise, you're not going to be able to get it.
Justin Harrison 20:09
Absolutely. Dawie, I already see a few questions coming through about exemptions on the property and in some cases, fees can be avoided. Andile asked a really good question; I'd like to address those after your slides, because there are actually, some really good tips that I can give people to look at how to reduce fees or how to avoid them completely.
David Bester 20:34
Yes. Okay, so, the extra costs after getting your bond. So, let's assume, you've got all these costs; you've got everything lined up; you've got the deposit; you've got all the extra fees. Now, there’s an extra cost that no one tells you about. In order to get your bond, you will need to have life insurance. The bank is not going to give you a bond if you cannot guarantee them. And the way that you guarantee them is, by taking life insurance. Let me make it very clear for you; life insurance is not only to look after your family; it is also a guarantee for the bank, that if you die, the life insurance will cover the bond for them.
Justin Harrison 21:11
Ja, also Dawie, I think it's important for people to understand that life insurance, is a requirement by the banks, for the lifetime of your bond. So, as long as you have a bond, you will have to have life insurance, for at least the amount of the bond. If you have a bond for R1 million, you will be required to have life insurance of R1 million.
David Bester 21:31
Then, another thing is home contents insurance. You've got building insurance; maintenance fees, which we have discussed already, the 1% that you need to put down and that is being conservative. And then, rates and taxes; everyone's got rights and taxes. Try and not to pay your rates and taxes and see what happens to you. If you think that you own your home, try not to pay it for a few months or years, you will see how quickly your home gets taken away from you, by the government. And then, if you live in a sectional title, you'll most probably have levies. So, a lot of people, especially in the cities, live in sectional titles, and when you rent, you luckily don't have the extra fees of levies but if you do rent and you are in a security estate, then you’ll most probably have levies, and it's quite a big amount that they charge you.
Justin Harrison 22:24
Dawie, another thing that's really, really important to consider is, a lot of people who are in freestanding homes or standalone homes, you have to add on the cost of security; you have to add on the cost of securing your home, which may be installing alarm systems. It may be a subscription to an armed response service. And then, on top of that, depending on the areas that you live in, if you in one of these prominent business districts or one of these up-and-coming areas, what a lot of the private community members have done is, they’ve put together a private ratepayers’ association, which is called the UIP. And basically, that's the same as almost having levies in a complex or an estate. So, you'd contribute something, over and above your rates and taxes, to a private institution, that would help maintain roads, verges because, you know, our government does bugger-all in this country. So, it pretty much falls back onto private enterprise and private individuals. This is one of the reasons why UIPs are there. These are costs you factor in and they're not cheap. I mean, your UIP can go up as much as R1,000 per month, depending on the area you live in. Armed response and those sorts of things, can run you close to 500 bucks a month, plus the cost of either installing the alarm, if you pay cash for it or rent it, there's a fee there as well. So, there's a lot of additional costs that people really have to factor in, when they're looking at their monthly costs, in terms of owning a home.
David Bester 23:49
Yes, once again, that's the nice thing, if you are renting; you don’t have to install all those things, you can simply just ask the landlord to do it for you. As an example, about two years ago, I was renting in Namibia - because we go there quite often - and we got broken into. I just told the landlord, listen here, we need to get an alarm system and burglar bars, otherwise, it's not going to be working out for us anymore. Obviously, they needed tenants in the building because it was vacant for about six months, and he did it. It cost him more than 10,000 to install the burglar bars and the alarm. Later on, I asked him for beam as well, which also, that was another probably like 7,000. Now, if you were the person buying the home, you would most probably have to install it. The nice thing, if you're renting, you're not liable for that, in most cases.
The benefits of a bond originator: no extra costs; absolutely nothing. So, the bank pays the bond originator, only if your home loan is successful. This makes no difference to you; this doesn't add up to costs liable on your account at all. It's absolutely no cost for you, so it's absolutely crazy if you don't use a bond originator. A few years ago, when I bought my first property, I went to my bank, and I've got a very good relationship with them. However, because I'm self-employed, or I wasn’t self-employed, I was an entrepreneur, which is also classified by the banks as self-employed, they asked a lot of extra questions, and I actually used the bond originator, which got me approval in principle, within a few hours. So, that is the benefit of bond originators. See it as Hippo - when you got a Hippo, looking for a car insurance quote, you type in your information and it spits out a bunch of quotes for you. Well, that's the same thing with bond originators. You’re sending your details once, to one bond originator, they go and they compare the rates to see where they can get the best interest rate for you, and where they can get approval for you. They do all the work for you. So, as I said now, you simply submit it to them once and they basically send it out; they do all the processes; they've got internal systems that do all the work, and they basically spread it out to the banks. They negotiate on your behalf as well. If you've ever tried to negotiate with the bank, you will know, that it's an absolute nightmare. That is a benefit, once again, of having a bond originator. They compare rates from all the major banks, and sometimes, the bond originators have contacts at the bank, that you probably don't have. You need to remember, these people work with the banks on a daily basis, so they most probably know people in the industry, that you don't.
Let’s talk about how you can save on your bond. Now, I've taken two examples here. The first example is, a bond of R1 million, over a 20-year term, at an interest rate of seven, which is actually really good - it's prime, and your monthly repayment will be R7,753 currently. The total that you'll be paying is R1.86 million. And the reason for that is, obviously, the extra interest that gets added to your account, also called the cost of the bond. Now, if you take that very same bond, and you only pay 10% extra, which is R775 on your monthly repayments, in this example, then your monthly repayment goes from R7,753 to R8,528 right. But now, this is where it gets interesting because you're paying more on your bond, you're actually reducing your term because you need to remember, you're paying off your bond quicker now because you're adding more to your monthly repayment. So, you'll finish your bonds in 16.5 years, which means, in the end, you’re only going to be paying R1.68 million, but you are going to be saving, R171,532 on your bond, only for paying 10% more every month.
Justin Harrison 27:58
Ja, I mean, that's absolutely massive. I think anybody who doesn’t take it seriously. And I think that's another thing people don't factor into when they buy homes. They tend to bond at the maximum amount they can get, and shop around at the maximum amount they can get. This is why we are big advocates of really negotiating your deals, try and get the purchase price down; that's obviously, the first place you save money. And then, the second place is to try and get your interest rates down and then, the third place, which is the place you control, is contributing more than your minimum monthly required instalments. If your minimum monthly instalment is R5,000 a month and you can afford R5,500, you're probably going to pay that place off in about five years, quicker. So, 10% is going to get you to roughly four and a half, five years quicker; 20% is going to double that. So, it really makes sense, just to put in as much money as you can, as early as possible.
David Bester 28:58
Yes, exactly, and make sure you get an access bond, meaning, that if you put in extra money, you can also take out extra money, plus you can put in extra money. Now, if you get a lump sum cash somewhere, let's say, from an investment or wherever you can always add it towards your bond as well. And then, you can pay off your bond quicker and there are lots of calculators that you can use. I only showed you two examples now. Just to give you an idea of what happens and I'm still going to show you the second example, but that just gives you an idea, how adding more to your bond and just by paying a little bit more every month, or lump sum, will save you thousands in the long run. I mean, we're looking at, R178,000 there or R71,000.
So, the second way you can save on your bond is, actually from the start already, before you even start paying on your bond. And that means, getting a better credit score and getting a better interest rate as a result. So, I've taken two examples here. I actually showed this in our previous webinar as well. Person A and person B, both qualify for or both take out R1 million home loan. Person A has got a good credit score and person B has got an average credit score. So, person A, with a good credit score, gets a 7% interest rate; whereas person B, with an average credit score, gets a 9% interest rate. Now, this might look a bit insignificant for you at the start, but look at what happens after 20 years. And I don't even do the 30 years one because a lot of people actually take bonds over 30 years, so you'll probably see this almost doubling. But, for interest’s sake, let's just take a 20 year, and you'll see that your repayments will be R1.6 million for person A, with a good credit score, and R1.9 million for person B with an average credit score. So, just by increasing your credit score, and remember I said this earlier as well. Before you apply for a bond, make sure your credit score is excellent; as a result, you'll be saving about R262,800, in this example. And we didn't even do the 30 years one; this is just a quick example showing a good credit score. You can even get an excellent credit score and save even more.
And that is it. So next, I'm going to show you quickly what it looks like on My Credit Status.
Justin Harrison 31:13
David, while you’re bringing that up, can I start bringing some of the questions up?
David Bester 31:18
Yes, sure. Go ahead.
Justin Harrison 31:20
So, let's just quickly address some of the questions, quickly; the more in-depth ones, we'll cover in a bit. So, Sibusiso asks: “Hi guys, do levies include the water bill in a flat?” My answer was, in 99% of the cases, no. There are some sectional title units that may include it. But for the most part, no. So, that is something I would go and clarify.
I just want to quickly see; we've got a question here from Yvette: “I'm a first-time buyer from Klipspruit West Johannesburg South. I hope to learn from ordinary citizens any home loan tips; getting my credit status in good health.” Ja, Yvette, my biggest piece of advice is, probably what Dawie has already reiterated. Number one, make sure before you go out and buy a home, do your due diligence; make sure that you are paying a market-related price or hopefully a little bit beneath it; then try to negotiate a really good interest rate; and then, try and pay extra in. Those are really the big tips that we can give to first-time homeowners.
Lucinda says: “I inherited a house and want to do some maintenance. I did not have a home loan prior to the inheritance. What is the best way forward to borrow some money, to be able to do the much-needed maintenance?” Okay, so Lucinda, I'm going to answer this question in two parts, so please feel free to comment below, if I didn't hit the point for you. First of all, you need to differentiate whether you're doing maintenance, or whether you're doing upgrades. If you're doing maintenance, my real advice to you, is to try and do it slowly, quietly and peacefully, with cash that you have; even though you might really want to go and do it as quickly as possible, it’s probably not the best thing. On the other hand, if you're doing upgrades, which are going to drastically improve the price of the property, and there's a chance that you may be looking to sell in the medium term, maybe within the next five to seven years, then I would advise going to the bank. You have an asset, provided you have got income, as Dawie was saying, the normal criteria will apply for a home loan. Then, go and apply for a home loan, make sure it’s an access bond so that you can put money in and take money out, as you need. And my advice would be to do the necessary upgrades. But if it's maintenance and you can do it quietly and peacefully, that's probably going to be the best run because the money you're going to save in the long run is going to be absolutely huge.
A lot of people are renting, I see. There's a really good question that came up here, asking: “Which is the best to own - a flat or house?” Now, that's a really good question. I think, if you're a property investor, you'll probably answer that one way; if you're a potential homeowner, you'll answer a different way. So, definitely from an investment perspective, apartments tend to be better, than single homes. There's a lot of reasons for it. From an ownership point of view, it really depends on your stage of life. What I would say is, really consider your lifestyle; really consider how you spend your time because, in my personal opinion, a home is a luxury. A flat is probably a better investment. Number one, it's going to retain its value probably a little bit better. Number two is that you don't have the problems that you have, associated with a freestanding home, like maintenance, garden care, pool - if you've got a pool – so, all of these things, really kind of, makes a home a little bit less attractive. But then, in the instance, where you have family, and you have kids, you're probably going to spend a lot of money, taking your kids out on the weekends, if you're staying in an apartment, and so that money could be best served to put yourself into a home. So, it really depends on your stage of life; depends on your personal situation. Typically speaking though, young people do well in flats and old people do well in flats. And when you’re still in that middle stage of life with kids and you need the extra space, then the home would probably serve you better.
David Bester 35:19
Yes. There's something I want to add there; please go back and look at our previous webinars. We did a webinar a little while back, with a property investor. They actually do quite big developments and there was a lot of excellent tips that he shared as well when it comes to owning or purchasing flats or purchasing a sectional title or freestanding. So, please make sure to go look back and while you're at it, click on the [subscribe] button below; this will enable you to get updated when we do these webinars, so you don't miss out.
Justin Harrison 35:53
Absolutely. Nosipho says she’s got five years left on her bond and she wants to finish it early. Really, the only two tips we can give you and its straightforward advice: number one, we're at an all-time interest rate low. Go back to your bank and see if you can get those interest rates dropped. They probably won't be very motivated but “persistence sterilisers resistance”, as we say; keep going at them, chances are, eventually, they'll drop your rate. And then, the second thing is, just pay in some more money. The more money you pay in; the quicker you're going to complete your bond. So, that's a really good tip.
Unathi says: “With a score of 650+, what is the most interest rate they can charge me?” Well, Unathi, that’s a very difficult question to answer because it really comes down to your personal situation. It depends on how much you earn; it depends on how high your expenses are; it depends on what your current debt utilisation ratio is; it depends on how many loans you have; it really depends on a lot of different factors. So, what we’re saying is, best practice to get a bond approved is 650+. What your interest rate would be, is anybody's guess. It really is down to your relationship with the bank, but typically speaking, people with 650 and upwards, are going to get as close to prime as possible.
David Bester 37:12
Ja, I think, for home loans though, the maximum interest rate that a bank can charge you is 18.75. So, you definitely don't want to take a bond at 18.75 but yes, that's about the max. And, if someone offers you 18.75, I don't think you need to buy a home; I think you need to rent and increase your credit score, and then go back and apply again.
Justin Harrison 37:33
And increase your savings, for sure. Andile says: “I'm led to believe that the fees are waived if you go for a property, a R1 million or less. Can you explain those costs that are waived?” Dawie, you can maybe go into that but something I just wanted to touch on, very quickly; there is a waiver for a certain process, which allow first-time buyers to get into the market. One of the tips, I really want to give people, that if you are buying for the first time and you are probably buying over a million because there's not much you can buy for a million these days. My advice to you would be, to try and buy in a new development, where there are no transfer duties. As a first-time buyer, I can tell you, buying a property, without transfer duties, is a massive, massive, massive saving because your transfer duties might be a couple of R100,000, depending on the size of the property; might be a couple of R1,000, depending on the size of the property. But it's going to be a significant amount and what people don't calculate, is that when you buy a home with transferred fees and you have a bond, for 20 years, you're paying those transfer fees. So absolutely, my biggest tip is, if you're a first-time buyer, try and either get under the threshold, which, I’m led to believe is correct, is R1million…
David Bester 38:49
It’s R750,000 Under R750,000, then you don’t pay any fees
Justin Harrison 38:56
So, it used to be 500 and they’ve now raised the threshold, right?
David Bester 39:02
Yes, and then from 750 to 1.25 million, is 3%, so it works on a sliding scale [inaudible]
Justin Harrison 39:11
Ja, so, just the biggest tip we can tell you is, just try and avoid those transfer duties, where you can, because that's going to save you a hell of a lot, in the long run. And then, Andile is the same sort of thread is asking: “Do these fees applicable get added onto the bond amount approved by the bank?” It really depends again, on the deal that you structure. Depending on the kind of finance deal that you're able to get, sometimes those fees will be part of your bond. Alternatively, the banks may actually require you to pay those fees by yourself, depending on your current situation. I know that there's a lot of people, that are required to cover their own transfer fees, and when people are moving into a home, they don't often take into account, the cost of moving, the cost of getting set up, and the cost of transfer fees, which can often run into a couple of R100,000. So, really just be very, very mindful of that. It really does depend on your individual situation.
And then, Andile, asking again: “I have term life cover as part of life cover; meaning, it’s cover for 10 years basically. Will the bank decline because it's not for life?” Ja, Andile, I think you're going to have a pretty hard time; you may convince one or two banks out there and they may choose to review your bond life insurance, within that 10-year period. But, typically speaking, it's probably not going to work.
And then, we've got a question here from Noluvo and she's asking: “I'm in the process of buying a house, and the money I saved for extra costs is no more than I take a credit card to cover the costs, or should I talk to SA Home Loans. Lawyers had called today to sign.” Dawie, I don’t know if you maybe want to take that question?
David Bester 40:57
Okay, so I think what she means is, she obviously now got a home loan but now, she's got a problem with the extra cost that we were talking about. So yes, that is a problem and that's why we're doing these webinars, to educate you guys, to help you make sure that you've got the money saved up. But I would definitely not use a credit card, because the fees on credit cards are astronomical. So, if I were you, I would talk to SA Home Loans and see if they can increase the bond amount that you're lending or that they’re lending to you, to cover those fees; maybe by a hundred thousand extra or whatever it may be [inaudible]
Justin Harrison 41:34
If they can provide bridging finance. Absolutely.
David Bester 41:37
Yes, or bridging finance but I would rather go that route; I would definitely not do a personal loan or credit card, in that instance.
Justin Harrison 41:44
Absolutely. And then, Nosipho asks: “Do you need to advise the bank if wanting to pay extra? Or can you just pay?” Nosipho, it actually really depends on your agreement with the bank, so, if you have an access bond, then you can simply pay into the bond account, that's not a problem at all. If you don't have an access bond, what you'll probably have to do is, pick up the phone to your bank, and just say, listen, can you please increase my debit order for X amount and set it to that amount every month? Typically, with access bonds or you can put money in and take money out, as you please.
And then, the next question is: “Some tips in WhatsApp also; I missed some of the tips because I'm at work.” What we will do is, we will publish a replay on this, as we said and that replay will be sent out. So that pretty much covers all of the questions that have come through. Dawie, if you want to just quickly hop onto your quick presentation you want to do, on how the system works.
David Bester 42:37
Yes. So, let me switch over to this thing. Okay, so here you will see, what a report looks like or a credit report looks like on My Credit Status. Firstly, you will see your score here, and you'll see what credit range you fall into. Obviously, where you want to be is, at the least good. And obviously, you want to strive to be excellent. Remember the examples that I showed you, the better your credit score, the better interest rate you're going to be getting, the more you're going to be saving in the long term.
The second part is, will show you the likelihood of applying for a home loan and any other kind of finance. So, you will see this guy here, has got no chance; this is a demo account. But, yes, he will probably need to wait a while and increase his credit score, before he will be able to get a home loan. So, if you guys are unsure, this will give you a good indication of, if you will be able to qualify for a home loan, or not, and also, just look at your credit score and see where you're at. We explained the importance of fixing your credit score first before you go and apply for a loan, so make sure you get your credit report; make sure you fix your score, and not only fix it, but get it to excellent, where you will get the best finance deals from banks.
This part is the utilisation ratio. This is very important; it's the second biggest factor on your credit report. You want it to be 30% or less. And this is probably one of the quickest ways you can increase your credit scores, just by fixing this debt utilisation ratio. I'm not going to go into detail but here's the video, if you click on it, and I'll explain to you how to do it, and the importance of it.
And then, you'll see a few tips: understanding your report; listing explanations. These are just tips to improve your score; addresses; your historical phone numbers; your employers; and your previous inquiries. This is where you check, if you apply for a bond, you'll most probably see this inquiry, ending up here. The loan accounts are, if you've got personal loans, or if you've got microloans. The retail accounts – so, this is where your home loan will actually appear, under the retail accounts. So, if you get a home loan, you will see it here.
And then, last but not least, is the payment profile and judgments. So, on the payment profile, this part is actually the biggest factor, when it comes to or accounts for the biggest part of your credit score calculation. You never want to be behind on your payments. If you are behind, you will see a red numerical number stating the number of days, that you are behind. This person has been on time with his repayments and so, you're looking at the green [OK] sign and that's what you want to see on your credit report. Then, last but not least, is the judgments, and if you've got a judgement, you can absolutely forget about getting a credit report or getting a bond approved, or any kind of finance approved. So, if you want to apply for a bond, make sure you have no judgments; you aren’t under debt review; and last but not least, the most important part, your credit score is good and you’re actually getting it to excellent because that's where you want to be.
Justin Harrison 45:52
Ja, so Dawie, before we close off, I just want to quickly address one question that's come through from Andile again: “Implications of being under debt review on credit score and home loan applications and other applications you can think of?” Well, first of all, if you're under debt review, you most certainly, should not be looking at a home loan. Secondly, you absolutely won't get approved. And thirdly, the implications of being under debt review is pretty simple. You're going to have zero access to credit; you’ll have zero access to finance. You may able to open one or two retail accounts, depending on how lenient they are, but the chances are, the moment you're under debt review, you probably just don't stand a chance. I hope I addressed that question.
Dawie, I'd really like to encourage everybody to go to mycreditstatus.co.za. Go and sign up, go and check your credit score. We do have a fantastic monthly service, which is unlike anything out there, in the industry. We've got a huge, huge library of educational videos, to help people; there's a book that's available to help you improve your credit score, that's available in the back end as well. And then, of course, just the tools: there’s a tool to help you set up a budget; there are tools to help you dispute incorrect listings on your credit score. There is absolutely no service in South Africa, like mycreditstatus.co.za. So, if you're not currently a member, please go and join; go and sign up. It's a nominal amount every month, probably less than most people spend on cigarettes or coffee. It's not like it's going to cost you a fortune – way less than a DSTV subscription and worth a hell of a lot more. So, go ahead, go sign up, and also one of the great benefits is, you get access to our insider mycreditstatus.co.za Facebook group. And once you become a member of My Credit Status, you'll be added to the group. And let me tell you, the people are super active in there; we are on there all the time; our staff sit on there; Dawie and I sit on there, answering questions. So, beyond the webinars and the content that we're giving out, if you really want a little bit more one-on-one advice, for your personal situation, go get a subscription; make sure you join the Facebook group, which you’d be approved on, and pretty much, we’ll be able to address your questions there. So yes, from my side, I absolutely cannot recommend the service highly enough. Go and get your membership; go sign up today; it's absolutely worth every penny and Dawie and I will be there to assist you guys, every step of the way.
David Bester 48:23
Yes. I highly suggest you guys go and get a membership, like Justin said, there's a lot of tools in there and advice to help you improve your credit score. When it comes to other services out there, you can sign up but there's not really anything helping you increasing it. And so, definitely, if you guys are serious about improving your score, make sure to get the membership. Also, in the next month or two, we will be releasing our new book as well, which will also show you exactly how to increase your credit score. So, make sure to subscribe to this channel; we will obviously, notify everyone when that happens, and also, you will be notified when these webinars also go live. Also, make sure to share this with your friends and your family. If you know anyone that wants to purchase a house, please share this webinar; help us get the information out there. We want to empower South Africans, and we want to empower people and help them to be educated and make these decisions, without any confusion and that's the aim for us, in this webinar. Please make sure to subscribe, and share it with your friends and family. And with that being said, if you guys missed it, we're going to be sending the replay shortly, and then we'll see you again in two weeks from now. I think next week, we’ll do another Q&A on Facebook as well but, yes, make sure to subscribe to the channels, and you will get notified.
Justin Harrison 49:42
And if any of you would like to catch up with us on a weekly basis, because Dawie and I do the My Credit Status webinars every two weeks. Every week in between, we have a very passionate project that Dawie and I are behind, called Global Money Academy. It’s really about educating people about personal finance. And really, the deeper levels of attaining financial freedom. So, if you are interested in that and you're interested in teaching yourself a little bit more financial acumen, go to globalmoneyacademy.com. What a lot of you might not know is that Dawie and I are both Amazon authors; our books sell all around the world, and we coach and teach personal finance. It very much stems back from the businesses that we’re involved with, like My Credit Status and we see how people are struggling with finance. So, if you feel like you need a bit of a hand, if you feel like you need a bit more education, just pop across to the link on your screen:globalmoneyacademy.com and we are there every week and every other week, we’re here with My Credit Status. So, we look forward to helping you guys, we look forward to coaching you guys, we look forward to helping you improve your credit scores, improve your overall financial well-being and we will see you shortly. So, from our side, tot siens; hamba kahle; and we'll see you soon.
David Bester 50:57