HOW TO PAY ONLY R366 280.00 FOR A BRAND NEW 2 BEDROOM HOUSE on the market for R499 500.00, and R520 000.00 FOR A 3 BEDROOM HOUSE on the market for @ R636 500.00 in BREDASDORP.

First time home buyers are finding it increasingly difficult to buy their own homes.

With interest rates that escalated from 7% to 10.5%, and ever increasing living costs, a first time buyer may for ever wonder – “How do I get my foot in the door to own my own home? & How do I save up for a deposit?”

UNIQUE OPPORTUNITY

A unique deferred homeownership opportunity for first time buyers is available in Bredasdorp.

First time home buyers can save thousands of rands and thus qualify easier for a home loan.

As the home loan price is also reduced compared to the value of the property, they will most likely be able to negotiate the best home loan interest rates.

DEFERRED HOMEOWNERSHIP IN BREDASDORP

This opportunity is available for Bredasdorp residents who are buying their first homes.

“Through the Deferred Rent To Own Homeownership Programme,

made available exclusively by the Department of Human Settlements

of the Western Cape and Cape Agulhas Municipality,

this unique opportunity is now available”,

says Meyer de Waal, a conveyancing attorney who developed and designed the       unique deferred Rent To Own home ownership module for first time buyers.

HOW FIRST TIME BUYERS CAN SAVE THOUSANDS OF RANDS

• A brand new 2 bedroom house sold for R499 500.00 on the market can be purchased at the reduced price of R366 300.00.
• A brand new 3 bedroom house on the market for R366 500.00 can be purchased a reduced price of R520 000.00.

All costs of transfer and bond registration are also included in the purchase price.

HOW IS IT MADE POSSIBLE?

Through the deferred Rent To Own concept, a first time buyer who is pre-qualified, enters into a Rent To Own agreement with the Cape Agulhas Municipality to buy the home at the price of R499 500.00 for a brand new 2 bedroom home, or R636 500.00 for 3 bedroom home.

“The Rent To Own agreements consist of a lease agreement for a 24 month period, a sale agreement and an option to buy the property at the end of the 24 month lease period”, says de Waal.

As previously stated, the price remains unchanged for a duration of 24 months, and within this timeframe, the buyer is required to make monthly rental payments to the Municipality.

DEPOSIT BUILDER

 50% of the monthly rental is saved in an interest deposit bearing account as a “deposit builder” for the buyer.

The rental is calculated similar to the rental to be paid on a home loan over a period of 30 years, paid back at the current prime lending rate of 10.74%.

WHY A 30 YEAR REPAYMENT CALCULATION?

 “The reason why we used a 30 year repayment term,

is that the expected monthly home loan repayment amount will be lower and reduced

at the end of the 24 month rental term when the property is actually purchased

and a home loan registered, to settle the (reduced) purchase price”,

says de Waal.

24 MONTH DEPOSIT BUILDER & 2 BEDROOM HOUSE

For the 2 bedroom house, the monthly rental will be R 4 600.00 per month, and calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

The buyer will also pay the rates and taxes for the property.

50% of monthly rental paid, thus R2 300.00 per month, will be saved as the deposit builder.

The “deposit builder” thus accumulates R55 200.00 saved over the 24 month period, plus interest.

FLISP- FIRST HOME FINANCE SUBSIDY

At the end of the 24 month term, based on the income of the first time buyer, a FLISP subsidy, now known as a First Home Finance subsidy is also applied for, on behalf of the buyer.

A first time buyer who qualifies for the subsidy, and who earns R13 100.00 per month can qualify for a R78 020.00 subsidy.

 

 

 

 

 

 

TOTAL DEPOSIT THAT CAN BE DEDUCTED FROM THE PURCHASE PRICE

The total of the Deposit Builder of R55 200.00 saved and the subsidy of R78 020.00 amounts to R133 220.00.

This means that the purchase price can be reduced by R133 220.00 through the deferred Rent To Own concept.

Thus:

• 2 bedroom house of R499 500.00 – R133 220.00 = R366 280.00
• 3 bedroom house of R636 500.00 – R116 436.00 = R520 064.00.

HOME LOAN OF R499 500.00:

A home buyer who needs to qualify for a home loan of R499 500.00, calculated on the current prime lending rate of 10.75% and paid over 20 years, must earn at least R16 900.00 per month, calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

FACT:

Reducing the purchase price from R499 500.00 to R366 280.00 means that a buyer who needs to qualify for a home loan of R366 280.00 needs to earn less. Thus opening the door to owning your own home to more buyers.

THIS IS HOW IT IS DONE:

HOME LOAN OF R366 280.00 PAID OFF OVER 20 YEARS

A home buyer who needs to qualify for a home loan of R366 280.00, calculated on the current prime lending rate of 10.75% and paid over 20 years, must earn at least R12 400.00 per month, calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

This lower home loan required of R366 280.00 reduces the income required for a R499 500.00 home loan, from R16 900.00 to R12 400.00 income per month.

HOME LOAN OF R366 280.00 PAID OFF OVER 30 YEARS

A home buyer who needs to qualify for a home loan of R366 280.00, calculated on the current prime lending rate of 10.75% and paid over 30 years, must earn at least R11 400.00 per month, calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

This lower home loan reduces the income required for a R499 500.00 home loan from R16 900.00 to R11 400.00 income per month.

HOW MUCH CAN ONE SAVE ON A 3 BEDROOM HOUSE SOLD FOR R635 500.00?

 24 MONTH DEPOSIT BUILDER & 3 BEDROOM HOUSE

For the 3 bedroom house, the monthly rental will be R5 900.00 per month, and calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

The buyer will also pay the rates and taxes for the property.

50% of monthly rental paid, thus R2 950.00 per month, will be saved as the Deposit Builder.

The ‘Deposit Builder’ thus accumulates R70 800.00 saved over 24 months, plus interest.

The R70 800.00 is then deducted from the purchase price of R636 500.00, and a home loan of R 565 700.00 is required.

To qualify for a home loan of R565 700.00, a monthly income of R19 143.00 is required, calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

FLISP- FIRST HOME FINANCE SUBSIDY

At the end of the 24 month term, based on the income of the first time buyer, a FLISP subsidy, now known as a First Home Finance subsidy is also applied for, on behalf of the buyer.

A first time buyer who qualifies for the subsidy, and who earns R19 100.00 per month can qualify for a R45 636.00 subsidy.

 

 

 

 

 

 

TOTAL DEPOSIT THAT CAN BE DEDUCTED FROM THE PURCHASE PRICE

The total of the Deposit Builder of R70 800.00 saved and the subsidy of R45 636.00.00 amounts to R116 436.00.

This means that the purchase price can be reduced by R116 436.00.00 through the Deferred Rent To Own concept.

Thus, the savings for a 3 bedroom house can be R636 500.00 – R116 436.00 = R520 064.00 paid for the new house.

HOME LOAN OF R520 064.00

A home buyer who needs to qualify for a home loan of R520 064.00, calculated on the current prime lending rate of 10.75% and paid over 20 years, must earn at least R17 600.00 per month, calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

FACT:

Reducing the purchase price from R636 500.00 to R520 064.00 means that a buyer who need to qualify for a home loan of R520 064.00 need to earn less, thus opening the door to owing your own home, to more buyers.

RENT TO OWN FOR 3 or 4 YEARS

36 MONTH DEFERRED RENT TO OWN OWNERSHIP

If the deferred Rent To Own concept is expanded to 42 months, then the first home buyer can save an extra R2 300,00 per month for an extra one year period, which means that the purchase price will be reduced with an extra 12 x R2 300.00, which amounts to R27 600.00.

This means that after renting a 2 bedroom house for 3 years, the buyer will be paying R82 800.00 less for the property, with an initial price freeze of R499 500.00.

42 MONTH DEFERRED RENT TO OWM OWNERSHIP

If the deferred Rent To Own concept is expanded to 42 months, then the first home buyer can save an extra R2 300,00 per month, which means that the purchase price will be reduced over 4 years with an extra 12 x R2 300.00, which amounts to R55 200.00.

This means that after renting a 2 bedroom house for 3 years, the buyer will be paying R110 400.00 less for the property, with an initial price freeze of R499 500.00.

 COMPARE RENT TO OWN VS A 20 YEAR HOME LOAN REPAYMENT

Herewith the calculation to compare a Rent To Own Deposit Saver & capital reduction VS a “normal” home loan repayment over 2 & 3 and 4 year terms.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PAY EVEN LESS – APPLY FOR A FIRST HOME FINANCE SUBSIDY

The First Home Finance subsidy applicable for the buyer at the time of exercising the option to buy will then be applied to further reduce the purchase price, enabling the buyer to apply for an even lower home loan amount.

This will ensure further sustainability for a first time home owner.

A FINANCIALLY EDUCATED & SUSTAINABLE BUYER

As the My Budget Fitness programme and mentorship, and a My Budget Fitness Personal Trainer that guides and mentors the new home owner to be for the duration of the rental period is included in the deferred Rent To Own concept, it is expected that such a programme, combined with reaching your dream to own your own home, will create a new generation of financially educated and sustainable home owners going into the future.

This will reduce the risks of lending as first time home owners will understand their obligations as a home owner and a borrower, combined with a lower debt ration to the property value.

The track record of paying rental on time for 24, 36 or 42 months ought to demonstrate the excellent propensity to a financial institution when the application for a home loan is considered.

REWARDS

Rewards can be added to the programme to incentivise buyers to pay their rent every month and on time.

Note & Disclaimer: The calculation for each buyer will differ, based on the individual income and credit profile of each buyer. Salary increases must also be considered as such may reduce the subsidy a buyer can qualify for, but may increase the home loan the client may qualify for. Subsidy calculations for each home buyer will also change, depending on the gross household income for each buyer profile.

Meyer de Waal

My Budget Fitness PTY & MDW INC

meyer@mdwinc.co.za

27 March 2023

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)