In episode 8 of the Change in your Pocket series, we continue the discussion around financing your own home by unpacking the transaction costs involved.

– Video supplied by BrightRock

Welcome to The Change Exchange where we are discussing the ins, outs, trials and tribulations of owning your own home.

Buying a home is often an emotional decision – but even if you are driven by emotions, there are still two critical financial elements you cannot ignore: don’t overpay and make sure you can afford it.

Not overpaying is common sense; why pay more for something than it is worth? There is always going to be a price difference between what the seller thinks their home is worth compared to a buyer and more often than not the estate agent is pushing the price in favour of the seller – so you need to do your homework. Look at other houses in the area that sold recently or are on sale to get a sense of the market rate.

But when it comes to affordability, people are not always fully aware of what it means to be able to “afford” a home.

Home-ownership is an expensive exercise with so many other costs you may have not even begun to consider. Before you decide to buy, you need to understand exactly what costs you are in for.

Due to the transaction costs when buying and selling, combined with the current low growth-rate in property prices, you would most likely only break even after seven to ten years. That means if you are planning on buying a home and then selling it in the next five years, you may be better off renting.

There are significant costs when it comes to buying a home. For example on a property of R1 000 000, your purchasing costs could be as high as R26 000. Not only do you need to build up a deposit but you must have enough money to settle the transaction fees.

If you are taking out a mortgage, as most people do, you will also need to take out life cover to cover the loan. For example, on a R1 million mortgage your life insurance could cost around R210 per month.