Unless you have earned an early inheritance or have been diligently saving for years, applying for a home loan is something you will have to do to afford the purchase price of a house.
But before beginning the house hunt, it is important to know the minimum monthly earnings required to qualify for the required home loan, says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa
“It is always advisable to run through a series of checks to assess whether that dream home is actually affordable. The bond that prospective homeowners can afford will depend on several factors, including a buyer’s take-home pay and credit score.”
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While noting that it is “tricky” to provide a minimum salary required for a home loan in South Africa because financial institutions are willing to offer a loan amount that is related to your income, he says that the lower your income, the lower the loan amount for which you can qualify.
“Your credit score will also play a big role in determining how much a bank is willing to lend you.”
To provide prospective buyers with a very rough idea of minimum earnings for a home loan, it can be helpful to consider what houses cost in each province and what salary you would need to qualify for on a home loan of the same value.
Citing BetterBond data for July 2022, Goslett says that, to qualify for a home loan of equivalent value at the current prime rate of 9% over a 20-year mortgage period, you’ll need to earn a gross household income of the following in these provinces:
- In the Eastern Cape, the average purchase price is R1 048 847 – the most affordable of all the South African provinces – so you’ll need to earn at least R32 000 per month to afford a home loan of this value.
- In the Western Cape, the average purchase price is R1 778 806 – the most expensive of the provinces – so you’ll need to earn at least R54 000 per month to afford a home loan of this value.
- In KwaZulu-Natal, the average purchase price is R 1 482 625, so you’ll need to earn at least R45 000 per month to afford a home loan of this value.
Shaun Rademeyer, chief executive of MultiNET Home Loans, says that, when buying a home, it’s important to remember that the price tag on the property is not all you’re going to have to budget for.
“It’s best to have between 8% and 10% of the purchase price put aside for other purchase expenses, including bond costs and transfer duties. Transfer Duty is a government tax levied to transfer the property from the seller's name into the buyer's name.
According to SARS, the transfer duty is the tax levied on the value of any property acquired by any person by way of a transaction – or any other means. Transfer duty applying to property refers to land and fixtures, including real rights in land, rights to minerals, a share or interest in a residential property company, or a share in a share block company.
He shares the following information:
Who pays the Transfer Cost and when?
The burden of property transfer costs falls on the shoulders of the buyer and is payable within six months from the date of acquisition. If the buyer fails to pay the transfer costs within this time-frame, interest will be added at a rate of 10% per year for each completed month – which is calculated as the first day from the expiry of the interest-free, six-month period to the date of payment.
“It’s important to note that, in the case of conditional sales on a home, the six-month period starts on the date that the transaction was entered into, not the date when the contract becomes binding. This means the period starts on the last date of the party signature to the agreement, not the date the conditions are fulfilled.”
Who do you pay the Transfer Duty to?
The transfer costs, Rademeyer explains, are paid to the estate agent or conveyancing attorney who is responsible for the transfer of the property into your ownership. In South Africa, it is actually the seller who gets to appoint the conveyancing attorney, while the cost is still covered by the purchaser. This makes negotiating fees with the conveyancing attorneys trickier, however, there is nothing stopping the buyer from putting forward suggestions of conveyancing attorneys. Just take note that the conveyancing attorney’s fees are separate from the transfer duty costs.
How do you calculate the Transfer Cost?
SARS is responsible for determining the transfer duty amount, and this is calculated according to the value of the property – not the selling price.
“However, in most cases, the selling price of the property will represent the property value, so it’s easier to work out an estimate. Red flags for SARS will be when a property is being sold within a family, where the selling price could possibly undercut the actual value.”
What Are the Transfer Duty rates?
Since March 2020, he says, the transfer duty threshold has since been R1m, which means that properties valued below R1m are not subject to any transfer costs.
These costs apply to properties that were purchased after March 1, 2020:
- From R 1 000 001 to R 1 357 000, the transfer duty is calculated at 3% of the value above R1m.
- From R 1 375 001 to R 1 925 000, the transfer duty is calculated at 6% on the value above R 1 375 000 PLUS a flat rate of R 11 250.
- From R 1 925 001 to R 2 475 000, the transfer duty is calculated at 8% on the value above R 1 925 000, PLUS a flat rate of R 44 250.
- From R 2 475 001 to R 11m, the transfer duty is calculated at 11% of the value above R 2 475 000 PLUS R 88 250.
- From R 11 000 001 and above, the transfer duty is calculated at 13% of the value exceeding R11m PLUS R1 026 000.
On average, Rademeyer says, buyers pay 2% to 5% in closing costs.