Things every young adult should know when buying a house for the first time

“Generally as you are older, you have the benefit of joint incomes, an established credit record as well as better earning power. Without these aspects, it is more difficult to raise money for a deposit, get a loan from a bank as well as maintain the bond, making owning a home a daunting prospect for any young adult,” says Monde Motha, Channel Manager at FNB Home Loans..

According to the FNB Estate Agents survey, first time home buyers made up 28% of total home buyers in the second quarter of 2014. First and foremost, it is important to establish you want to be a home owner and whether they you are  being realistic in what you want.

“Buying your first home is a big step, and also a very big financial commitment,” says Motha. “Your needs to understand that repayments will account for a big chunk of your monthly income, which may mean you aren’t able to afford additional expenses such as studying further or trips away with friends.”

It is not only a big financial commitment, but also a long term commitment. Not only should you discuss the financial implication in detail, but what plans you have for your future, are you still planning on travelling, what will happen if you change jobs, or cities?

“If you don’t have a reasonable plan for at least the next few years, you possibly shouldn’t be committing to a 20 year bond,” says Motha.

After establishing need, affordability is key to home ownership. Carefully go through all the aspects of home owning that you may not be aware of including legal costs, bond registration costs, how much you have in terms of a deposit as well as how you plan to finance you monthly bond costs.

“Remember not to be fixated on the cost of the property alone when assessing affordability but to consider it in its totality,” says Motha.

You will have other ongoing fees on top of your monthly bond repayments. These fees include household insurance, levies or municipality bills, electricity and water as well as general maintenance.

“It is helpful to run through the different scenarios with , use tools at your disposal such as property affordability tools to understand all the costs involved in the actual bond,” suggests Motha. “Also look at other people’s own examples of municipality bills, household insurance and estimate the costs involved on top of your bond repayments.

“You can also look into ways of relieving the financial pressure, especially in the first stages of bond repayments, such as bringing in a housemate as a temporary measure,” says Motha. “This will make a big difference to your disposable income and allow you some financial freedom.”

One tangible way of  getting help purchasing your first home, is to ask your parents to  stand surety or do a joint application. “FNB and other banks offer loans to multiple applicants, this means that you can have your parents considered as part of the loan agreement and their credit and financial position will be taken into account when assessing the loan,” says Motha.

Depending on the number of people applying for the loan, a person signing as a joint applicant is considered as a part of the application and all of the parties involved are subject to the credit assessment process.

The benefit of this is obviously that you will  have have a better chance of getting a bond, however there are negatives to take into account for your parents own financial position.

“When applying for a bond as a joint applicant, your parents will be liable should you default and is you no longer able to afford to repay the bond, which means they will be held responsible, together with your you to recover the payments towards the home loan and any other legal costs incurred,” warns Motha.

Motha advises that it is crucial that you should be well informed and fully understands the importance of maintaining the monthly repayments.

“As a consequence of defaulting on the loan, all parties will end up having a poor payment profile with the Credit Bureau which could impact whether credit is extended to them in future.”

Home buying as a young adult isn’t always an easiest experience, but parents can help smooth the way for them, through sound advice and support and when able, financial assistance in the form of standing surety, or even helping with the initial deposit.