General information about obtaining finance for real estate in South Africa

What is a mortgage?

The pledge of a property as security for a loan. This does not mean that the bank will not require personal surety

What properties qualify for a mortgage loan?

The property must qualify and fall within the urban, freehold, leasehold (99 year) or sectional title banner. Further the property must be located in an urban or residential suburb in the republic of South Africa. The  properties further can be able to be mortgaged i/e A property which allows the buyer to apply for a home loan and use the property for security for said home loan. Lets explain:

                                    The following properties can be mortgaged:

• Constructed and completed

• Houses and flats/apartments

• Town houses, Cluster homes and Sectional title units/Condominiums

• Semi-detached houses/Town Homes

• Holiday or Second homes

• Dwelling to be constructed

• Small-holding of up to 8.5HA

• Vacant stands/lots

What is the maximum home loan I qualify for?

If you are a South African citizen - your joint gross monthly income and multiplied by 30% (or 25% if you're single), this will give you the maximum monthly repayment you may qualify for. 

Affordability

It is important to bear in mind that the amount you qualify for and the amount you can afford may differ. When budgeting for a home loan, remember that there are other costs that need to be provided for, for example your insurance premiums on the house etc. Monthly expenses vary from household to household and it is important for you to look at your budget to determine affordability. Remember too, that a common mistake made by buyers is to calculate their maximum affordability limit not making provision for future interest rate fluctuations and other monthly home ownership costs.

What are the costs involved?

These costs can differ from situation to situation but listed below are the most common costs. Please ask your estate agent or home loan consultant to prepare an estimate of costs for you.

Deposit

Your bank may require a deposit of up to 20% of the purchase price of the property, depending on the amount of the required home loan and your financial standing. This deposit is to ensure that you retain a satisfactory percentage of equity/investment in the property.

Bond/Mortgage Registration Costs

The conveyance/closing attorney who registers the bond/mortgage levies a fee. This fee is based on a tariff as recommended by the Law Society (calculated on the total loan amount registered). A charge is also raised for postage and petties. This is to cover the cost of the postage of all relevant documentation to the Deeds Office, Bank, Estate Agents and yourself. VAT( value added tax) must be added onto the above fees. The Deeds Office also levies a charge called the Deeds Office Registry Fee. This fee is charged according to the home loan amount that is being registered. Up to R150 000 the fee is R75 and over R150 001 the fee is R100. Finally, stamp duty is also payable. This is a Government duty and is calculated at the rate of 20c per R100 of the home loan.

Initiation Fee and Property Assessment Fee

The Initiation Fee is a once-off fee charged by the bank to cover their costs of processing a home loan application. The Property Assessment Fee is the fee charged by the bank for conducting an assessment of the property. These fees vary from bank to bank and we suggest you contact your home loan consultant for further details.

Administration Fee

This is a monthly fee which is payable to the bank to deal with the administration of the home loan. This fee will vary from time to time in accordance with any amendments to the Usury Act of 1968.

Interim Interest

This is the interest charged on your home loan during the period between the date of loan advancement (mortgage loan registration) and the date of your first installment. This may range from a few days to a month depending on the date of registration of the property.

Property Transfer Cost (Closing Costs)

The transfer of the property from the seller’s name into the buyer’s name incurs transfer fees which include:

Transfer Duty

This is a government tax and differs for individuals, trusts, close corporations and companies. The fee for individuals is calculated as follows:

1% of the first R70 000 of the purchase price, plus

5% of the purchase price between R70 001 and R250 000, plus

8% of the purchase price above R250 001.

Trusts, close corporations and companies are charged 10% plus VAT of the purchase price.

Please note that the above figures are for estimate purposes only, kindly consult your estate agent or conveyance attorney for exact figures.

Conveyance Attorney fees

The conveyance/closing attorney who registers the property transfer levies a fee. This fee is based on a tariff as recommended by the Law Society (calculated on the property purchase price). A charge is also raised for postage and petties. VAT must be added onto the above fees. This is to cover the cost of the postage of all relevant documentation. The Deeds Office also levies a charge called the Deeds Office Registry Fee. This fee is fixed according to the amount of the purchase price. For a purchase price up to R60 000 there is no charge, between R60 001 and R150 000 the fee is R75 and over R150 001 the fee is R100.

Rates and Taxes

This charge, payable to the relevant Local Authority, covers all rates and taxes that need to be paid in advance by the buyer. This amount varies from one Local Authority to another.

Other Costs:

Purchase Price Deposit

A deposit is not always required. However in the event that a deposit is to be paid, the details regarding the payment thereof must be clearly stipulated in the Sale Contract.

This deposit is usually paid into the conveyance attorney’s trust account and in some instances interest will accrue on this deposit, until date of transfer, where after said interest will be paid over to you and the actual deposit will be paid over to the seller.

Occupational Interest (Rent)

This is an amount negotiated between the buyer and the seller and is clearly set out in the Sale Contract. This is the pro-rata monthly rent that would be due by the buyer to the seller should the buyer take occupation of the property prior to the date of registration of transfer of the property. However should the seller remain in occupation after the date of registration of transfer of the property the seller would be liable to pay occupational interest to the buyer.

Moving/Relocation Costs

It is a good idea to try and move during the off-peak period,  this is usually the middle of the month. Discounts can usually be negotiated and we recommend that you obtain quotes from more than one removal company.

Homeowner’s Insurance

The home owner is required to insure the structures of the main dwelling and outside buildings for accidental damage caused by fire or flood which may result in partial or total destruction of said structures. The monthly insurance premium is usually included in the monthly home loan repayments.

Check list of once-off costs required when buying a home.

                                    Electrical compliance certificate on previous property

                                    Deposit on the house

                                    Assessment fee

                                    Bond registration costs

                                    Transfer duties and fees

                                    Occupational rent

                                    Moving costs

                                    Connection of water and electricity

                                    Telephone connection and transfer

                                    New furniture and fittings

                                    Alterations and repairs

                                    Settling-in costs e.g. new carpets and curtains

What documentation is required when applying for a home loan?

For individuals either single or married, a copy of the Identity Document and proof of income is required. Prior to registration of transfer, a copy of the marriage certificate, if applicable, would be required.

For a close corporation, a list of all the members, copies of each members’ ID, statement of assets and liabilities, balance sheet, trading account and income statement would be required. Prior to registration of transfer, a copy of the founding statement, resolution and a suretyship as signed by all members, if applicable, would be required.

For a trust, a list of all the trustees, copies of each trustees’ ID, proof of income of trustees and statement of assets and liabilities, would be required. Prior to registration of transfer, a copy of the trust deed, resolution and a suretyship as signed by all trustees, if applicable, would be required.

For a company, a list of all the directors, copies of each directors’ ID, statement of assets and liabilities, balance sheet, trading account and income statement would be required. Prior to registration of transfer, a copy of the memorandum of articles and association, resolution and a surityship as signed by all directors, if applicable, would be required.

BOND/MORGAGE  REGISTRATION OVERVIEW

Parties involved in the sale/purchase of a property

                     Buyer

                     Seller

                     Estate Agent

                     Conveyance/transferring/closing attorney  -  appointed by the seller to attend to the

                                                                                transfer of the property into the buyer’s name.

                     Bond attorney -  appointed by the bank, which granted the home loan

                     Cancellation attorney -  appointed by the bank canceling the seller’s bond/mortgage

Step one

The buyer and the seller sign the Sale Contract (Offer to Purchase)

The buyer applies for a home loan through a bank of his choice

Step two

The bank approves the bond and issues instructions to the Bond attorney to attend to bond registration.

Step three

The seller instructs the Conveyance/transferring attorney to attend to registration of transfer of the property.

The title deed and cancellation figures are requested from the bank which presently holds the bond over the property.

The rates and taxes statement is requested from the local authority.

Step four

Bond attorney makes contact with the Conveyance/transferring attorney and advises the amount available for guarantees and request draft deed of transfer and guarantee requirements.

Step five

The Cancellation attorney is instructed to cancel the seller’s bond on receipt of a guarantee for the amount owing on the bond.

Step six

The Conveyance/transferring attorney receives the title deed and cancellation figures and forwards a copy of the title deed along with the guarantee requirements to the Bond attorney.

Step seven

The Bond attorney attends to the preparation of the bond documentation and the relevant account.

The buyer is requested to sign the documentation and make payment of the costs.

The Bond attorney then prepares and issues the required guarantees and forwards same to the Conveyance/transferring attorney and prepares the bond documents for lodgments at the Deeds Office.

Step eight

Upon receipt of the guarantees, they are forwarded to the Cancellation attorney.

Step nine

The Cancellation attorney obtains consent for cancellation from the bank holding the seller’s bond.

Step ten

After all documentation has been signed and all costs paid, the transfer, new bond and cancellation bond documents are prepared by the relevant attorneys for lodgments at the Deeds Office.

Step eleven

Ideally all documents are lodged simultaneously at the Deeds Office.

The Deeds Office takes roughly two to three weeks to check the documentation before they are ready for registration by all the attorneys on the same day.

Step twelve

On the day of registration of transfer, the bank pays out the loan in accordance with the issued guarantees.

Allow at least three months for the above process. As can be seen, various factors can contribute to the delay of registration. These can include inter alia:

• Failure by the buyer/seller to provide/sign required information

• Failure by the existing bondholder to provide cancellation figures and/or title deeds timely

• Delay in receiving rates figures/clearance certificate from local authority

Conclusion and final word

Every effort has been made to provide you with an accurate overview of these matters and the above should not be construed as an undertaking or advice. Please consult your attorney, account or bank  for advice or undertakings in this regard. No decision should be made on any of the above information.