George Herald | Step by step or jump ahead?

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Step by step or jump ahead?
13:54 (GMT+2), Fri, 06 July 2012

PROPERTY NEWS - The property pricing and steady interest rates in today's market have given first-time homebuyers more options than they have had in the past. This may have many of them wondering whether they should purchase a starter home or opt for their dream home straight away.

Adrian Goslett, CEO of RE/MAX of Southern Africa, says that the answer to that question is determined by a number of aspects, such as affordability and the buyer's individual needs. "While all buyers would probably prefer to buy their dream home straight away, many may not be in a financial position to do so and there are advantages to starting out small and building up. Buying a smaller starter home could allow them to build up equity in that home, which will help them to upgrade to larger property in the future," he says.

Another aspect to consider is that while purchasing property should be viewed as a long-term decision, the buyer may not need an extra bedroom or large garden and could save money by compromising on unnecessary features that severely impact on the price of a home. The lower bond repayment and less expensive upkeep will allow the buyer to save money for their future dream home at a later stage.

Goslett notes that many first-time buyers are young couples and executives who are in the early stages of their careers, so buying a starter home may give them a chance to build up their income and affordability ratios to be able to afford a higher bond repayment and bigger property when their current home no longer meets their requirements. "Living in a starter home will also give the buyer a chance to assess what features they want in their dream home and what they don't, as well as get a handle on the different responsibilities and expenses that accompany homeownership," he says.

Very often, as a homeowner enters different stages of their lives, the features that they once thought they could not live without might become be less important. This is why Goslett says that first-time buyers should not shy away from starting with a modest home or apartment that serves both their current needs and budget. The smaller bond repayments and equity built will make it easier for the buyer to move to a bigger, more accommodating property as their life stage dictates it.

Goslett offers some advice to first-time buyers who want to fast-track their dream home purchase:

Have a deposit
Buyer should start saving for a deposit before house hunting. The greater percentage of the deal that buyer finances themselves, the better the chances of getting bond approval and a good finance deal.

Start small and build up
The first property bought may not be your dream home, but it's a foot in the door.

Have extra money saved for expenses
As a rule of thumb, buyers should have around 5% of the value of the home saved for other expenses, such as maintenance or renovations.

Reduce the bond term by paying extra
An additional payment of just R300 on a buyer's monthly bond repayment, can reduce a 20 year bond of R500 000 by almost four years. This will also reduce the amount of interest paid over the term of the bond.

Be prepared for the unexpected
Prepare financially for possible future scenarios such as an interest rate increase or any other scenario that could financially threaten future plans.

"There is no doubt that the current market conditions make this the ideal time to venture into ownership, however, a buyer can still enjoy the benefits of owning their own home and having their foot in the door without over-committing themselves financially and compromising their financial well-being in the future," Goslett concludes.