How to build a credit score and buy a house as a young professional in South Africa

South Africa presents unique challenges for individuals wanting to buy property, but once you understand how to build a credit score, opportunities can open up 

Are you a young professional dreaming of buying your first home? Homeownership is one of the smartest investments you can make, with the opportunity to earn passive income from renting out the property. Yet, there are no shortcuts. One of the most important things you’ll need to learn is how to build a credit score - and why you need to start now.

Granted, the process of buying a house may vary depending on one's income level. In South Africa, income disparities exist, and in cases of lower income, there can be a more flexible approach. Private buyers, for instance, might be willing to negotiate payment terms on a month-to-month basis, creating a more personal and accommodating arrangement. You may not need to prove robust financial health.

However, if you are seeking a specific property within a specific location with nearby amenities, the South African property market can be less accommodating. Even when considering properties with a price tag of 650,000 ZAR, which are considered basic housing, the need for a credit score remains a prerequisite. 

How to Build a Credit Score

The best thing you can do is start building a credit score today, since it can take months.  One way to begin establishing credit is by obtaining a small credit card. Some banks may offer this to university students, who can then use it when their parents aren’t able to send them money at a particular time. Use this credit card for minor purchases, like groceries or clothing, and make sure to pay off the balance promptly.

If a credit card isn't an option, look into opening other accounts like cell phone contracts or clothing accounts and continue to pay promptly. This demonstrates responsible credit usage before you apply for a major credit card from your bank.  

• Partnership Collaboration. If you are married or in a partnership, both partners' credit histories can play a role when applying for a home loan. Consider combining your finances and building credit together, as this can increase your chances of securing a mortgage.
  
  
• Student Loans. Paying off student loans can reflect an individual's ability to meet financial obligations. Even student loans obtained through a bank can be considered a form of credit that needs to be repaid.
  
  
• Life Insurance. Obtaining life insurance serves as a contractual agreement with the bank, with regular payments, and indicates financial stability.
  
  
• Rent. Consistent rent payments, even for a relatively short period, can serve as evidence of financial responsibility.

Don’t hesitate to visit a bank in person and speak to staff. They might also be able to advise you on options that aren’t explicitly mentioned online via their website or banking app.

Know What You Want

One of the crucial steps in the journey of buying a house in South Africa, particularly when facing financial constraints and wondering how to build a credit score, is knowing precisely what you want. Determine the number of bedrooms, preferred finishes, and the ideal location.

To streamline your search, you can use online platforms like Property24 and set up notifications for properties that match your criteria. Additionally, you can benefit from the power of word of mouth. Visit your local real estate branch and let them know what you’re looking for. Local Property Practitioners may alert you to suitable listings before they appear online. This approach can save time and effort in competitive markets.

Be Patient

Government systems can be slow and bureaucratic, and paperwork may go missing. It’s important to account for these delays; it’s not as simple as paying money and getting keys to your new house.

Furthermore, when it comes to obtaining documents such as police clearances, keep in mind that they have a limited validity period, typically six months. Even if a clearance is valid for a more extended period, it's advisable to renew it every six months to avoid potential complications with banks or other institutions that may require it. Having a backup clearance can help streamline the process and prevent unnecessary delays.

Another aspect of patience involves the timeline for property transactions. The property industry can be demanding, with buyers and sellers often having specific move-in or move-out dates in mind. However, it's essential to understand that sometimes the transition between properties may not align smoothly, and properties may stand empty for a period. This is a potential hiccup to consider when planning your property transactions.

Budget For Additional Costs

It's crucial for individuals, whether first-time buyers or repeat purchasers, to budget for additional expenses when buying a house. Expenses such as renting a storage container or hiring a moving company can quickly accumulate, while another hidden cost that can catch buyers off guard is the levies associated with living in a complex. Unexpected levies, such as maintenance or repairs, can lead to increased monthly expenses.

Legal fees, too, can be substantial. You will also likely require life insurance to cover yourself and your new home, protecting the property in case of unforeseen events.

When going through an agency, the responsibility for conducting inspections may fall on the buyer. It's essential to factor in the costs associated with inspections and any potential repairs or renovations that may be required. If you are buying property through a real estate agency, you also need to consider their commission rate.

Remember, too, that even with a good credit score, banks may not provide a 100% loan. You’ll need to have provisions in place to cover the difference between the loan amount and the property's purchase price.

Request a Professional Inspection

Before finalising a property purchase, we recommend you have a thorough inspection conducted by a professional. The property's electrical systems must meet safety standards and regulations, and if you or the seller are conducting the inspection, it’s easy to overlook shortcomings. A professional inspection should cover issues such as faulty wiring or the need for rewiring, which can be costly if overlooked.

Furthermore, buyers must ensure that all necessary certificates and documentation are in order when buying a house. This includes an electricity certificate and other relevant certificates that validate the property's compliance with regulations.

Property ownership in South Africa is more than a roof over one's head; property serves as a tangible asset and represents financial security in a nation marked by political shifts and economic fluctuations.

Ready to make a move and buy a house? Or have more questions about how to build a credit score? Contact Seeff for practical, expert guidance.